Gold Silver Reports — Rupee, Bonds to Get Support from Global Yield Hunters — Indian bonds and the currency are likely to continue their current dream run as yield hungry international investors are seen pouring funds into India where returns are probably the highest in any emerging economy and strong signs of improving macro-economic fundamentals. As the US Federal Reserve has left rates unchanged, asset classes such as emerging market stocks and bonds have become attractive for investors.
The rupee on Thursday gained more than half a percent or 35 paise to close at 66.67 per dollar as overseas investors were seen buy ing domestic debt securities and shares. The Reserve Bank of India was suspected to have intervened curbing any sharp surge in the local unit’s value, dealers said.
“A rate hike in the US may not necessarily be bad for India, as this may be considered as the reflection of Fed’s confidence over a recovery,“ said MS Gopikrishnan, head of FX, rates and credit trading at Standard Chartered Bank. “This should bode well to lift sentiments in the global markets.“
“India’s fundamentals are quite healthy and will continue to attract foreign investments. I expect a net $2-3 billion FPI inflows this year,“ he said.
The US central bank hinted at hiking its fund rates only in December while November policy announcement would avoid any action with the presidential election around the corner. Last December, US hiked rates by 25 basis points after nearly a decade. A basis point is one hundredth of a percentage point.
While the rupee may gain more against the greenback, bond yields are unlikely to spike pushing prices down. A case in point is the overnight interest rate swaps (OIS) in the offshore derivative market. The rupee too is likely to see upside trade in the range of 66.60-66.80$. The benchmark bond yield, now at 6.81%, is the second highest in the Asia Pacific region after Indonesia.
“We may see more FPI inflows in next few weeks,“ said Anindya Banerjee, associate vice president, Kotak Securities. “While the fear of a immediate Fed hike fades away , markets have just started factoring another quarter-percentage point cut in RBI’s policy rate. This will prompt yield hungry overseas investors to lock-in at higher rates.“ — Neal Bhai Reports