Top Indian Funds Said to See $1 Billion Contrarian Bond Bet
Reliance Group’s switch from short-termbonds has inspired at least three asset managers to do the same.
(Bloomberg) -- The Reliance Group has boosted the duration of its bond portfolio, moving about 70 billion rupees ($1.1 billion) from short-term funds to income funds at some of India’s top asset managers in anticipation of a fall in interest rates, people with direct knowledge of the matter said.
The switch by the group that comprises Reliance Industries Ltd., India’s most valuable company, is predicated on the expectation that the central bank will cut rates further, the people said, asking not to be identified as they aren’t authorized to speak on the matter. That contrasts with a general trend that’s seeing bond traders pare exposure to longer-tenor notes on bets the Reserve Bank of India has little room to ease more after lowering borrowing costs last week and maintaining a neutral policy stance.
Reliance’s mandate, which came after the Aug. 2 rate decision, has caused the switch in funds at at least three asset managers, the people said. Controlled by Mukesh Ambani, the second-richest Asian, the group is one of the biggest investors in India’s fixed-income market that is dominated by banks.
The switch “appears to be a move to bolster treasury income by getting into a product that will offer some capital appreciation and accrual benefits as we approach the end of the rate cycle,” said Vidya Bala, head of research at FundsIndia.
A Reliance spokesman did not respond to an email, phone call and text message seeking comment.
Shorter-duration bonds in India have outperformed since the RBI’s rate-deciding panel reduced the key repurchase rate to 6 percent and said it will watch incoming data. The five-year yield has dropped nine basis points since Aug. 1, the day before the central bank’s meeting, to 6.45 percent. The 10-year yield is up two basis points in the period to 6.46 percent.
The group’s interests span petrochemicals, retail and telecom. Reliance Industries, the flagship, earned about 94 billion rupees, or about a quarter of its profit before tax, in the year ended March by investing its surplus cash in bank deposits and debt securities, according to its annual report. It held cash and cash equivalents of about 721 billion rupees as on June 30.
--With assistance from Saket Sundria and Anirban Nag
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To contact the editors responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net, Arijit Ghosh at aghosh@bloomberg.net, Shikhar Balwani, Ravil Shirodkar