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Budget 2019: DBS Sees Investor Frenzy For India’s $10-Billion Foreign Bonds

Investors will pour funds into India’s foreign-currency bonds but emerging-market debt won’t get high demand in long run: DBS.

(Photographer: Graham Barclay/Bloomberg News)  
(Photographer: Graham Barclay/Bloomberg News)  

India’s plan to raise sovereign debt in foreign currency will see investors pour money in the short run but their enthusiasm may not last in the long term, according to DBS Group Research’s Taimur Baig.

There could not be a “better time for joining the global markets to issue foreign-currency denominated bonds”, Baig, managing director and chief economist at DBS Group Research, said in an interview to BloombergQuint. “We have had a major dovish turn among the central banks globally in the last six months.”

You would have investors beating up each other to get a piece of the action (bonds) if a large, stable economy like India offers 4-4.5 percent (return) in hard currency terms.
Taimur Baig, MD And Chief Economist, DBS Group Research

Baig still remains cautious. Emerging market debt as an asset class may not get such a degree of demand and greater allocation from foreign institutions and wealth funds in the long run, he said. DBS said investors still view developed economies as risk-averse when geopolitical issues such as the trade war emerge.

Finance Minister Nirmala Sitharaman said in her budget speech the government will raise part of its gross borrowing requirements through foreign currency. Sensing a huge appetite for its debt in the foreign market, India plans to raise as much as $10 billion from the first sales.

On Government’s Measure To Solve Liquidity Crunch


Baig said there were a lot of “ifs and buts” attached as conditions to government’s credit guarantee scheme to ease liquidity issues of non-banking finance companies. “It sort of answers the call the NBFC sector has been making over the past few months, but I don’t think this approach addresses the solvency issue.”

The government will provide a one-time six-month partial credit guarantee to public sector banks for first loss of up to 10 percent on high-rated pooled assets of NBFCs. That would cover non-bank lenders’ loan sales worth Rs 1 lakh crore in the ongoing financial year.

The credit quality problem is a financial sector problem and not a bank or a non-bank problem. Banks saw bad loans materialise because credit quality worsened and NBFCs stepped in to fill the gap,” said Baig.

“But they are also facing the same set of macro problems and now beginning to see worsening of their portfolio. Both their problems don’t need to be considered in isolation as they are part of the same bucket,” he added.

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