StanChart Sees Up to $30 Billion of Extra Inflows to India Bonds

Apparel, thanks so much for joining us. I just want to pick up on that point that Malavika was making about government borrowing 7 1/2 trillion rupees. That was about a trillion less than the market was expecting. What’s your take on that? Hi, Paul. Thanks for having me. So yes, it was a positive surprise for the market yesterday where the H1 borrowing was less than the previous year’s first half borrowing by 15%, market was expecting lower by around 5 to 7%. So that’s a definite positive surprise. Even looking at the composition of borrowing plan, the weights of the longer end bonds versus the lower end bonds, that’s broadly in line with how it was the previous year. Slight increase in the weight of in the notional amount of borrowing which will happen in the 15 year and longer bonds. But that’s in line with the excess demand or increase in demand we see from insurance and pension sector investors in India where their demand is growing at A at a good clip of 10 to 12%. So good share for the market. And this comes on the back of, yeah, there’s plenty of demand that’s for sure. I think there’s 10 billion of inflows and the government bonds since JP Morgan announced the inclusion of India on its emerging market bond index. So is this a trend that you expect to see continuing? Yes, absolutely. So ever since the inclusion in JP Morgan Bond Index was announced last year in September, we’ve seen a steady inflow of 1 1/2 to $2 billion from foreign investors into the Indian market. Around $10 billion has already come in. On top of this, there has been almost a $4 billion of investments in the rupee denominated dollar settled Supra national and agency bonds. So that’s also additional demand which has not hit the Indian market but definitely represents the increased interest in the India exposure. From here on, if I look at how the demand supply is panning out, how we are at the peak of the interest rate cycle in India and also globally, the positive sentiment of investors towards India remains intact. We think this flow of money will continue. The bulk of these investors are really fast money investors and some of the real many names who have been familiar with the India story, who are familiar with the Indian markets. We think there’s a large chunk of investors who will be new to India, who will be followers of the index, who will come in as the index rates start increasing in June. We’re expecting anywhere from 25 to $30 billion of additional inflows to come in and the Indian markets are definitely very excited for that. Yeah, I want to talk about RBI policy in a moment and also the direction of the rupee. But in terms of all this enthusiasm, this investment that’s coming into India at the moment, our Standard Chartered approaching this, what’s your strategy? So India is a core market for SCB. We have very strong domestic presence across the entire product suite. So we are looking forward to helping our clients along the entire inclusion way, familiarize them with the Indian markets, the various access routes they have. So we’ve been onboarding a lot of new names. We’ve seen interest in instruments like Total return swap, the TRSS in NDOIS, in NDS, the derivative instruments that give clients exposure to India. We are looking forward to helping them to the FX conversion hedging of their investments in India. We are uniquely placed to enable and facilitate our clients and give them access to the India markets. We are one of the largest international banks present in India and we have a full product suite available. So we are working very closely with our client base. Just as you were speaking there, we were seeing a chart of the RB is current rates, how are you, there’s the market and how are you positioned for the RBI policy decision next week. Is there anything specific that you’re looking out for, anything that you’re listening for the RBI policy next week? We are not expecting any changes on the repo rate front. So they will continue to remain unfold on the repo rate which is at 6.5%. What market will, what market and us will look out for is how their commentary on liquidity evolves. So in the last policy they went from being hawkish or keeping the liquidity stance in the market from a deficit mode to a more neutral mode. We think they just continue on the same. Another point that market participants will look out for is their commentary on stance. So RBI has maintained their stance as withdrawal of liquidity. Whether they change it to a neutral stance from withdrawal of liquidity, that will be a big market mover. If that comes currently market is giving something like a 15 to 20% chance of something like that happening. So that is something which will be exciting if it comes through in terms of rate expect rate cut expectations, market is not pricing in any rate cut, repo rate cut over the next 10 to 12 months. What we think is RBI will follow the Fed cycle. Only if Fed delivers a rate cut, will RBI follow. Otherwise, given the Growth Dynamics, RBI is not going to go ahead and deliver a rate cut parle. I just want to quickly get your thoughts on the rupee as well because we saw some sharp movements last week. Do you take this as a sign that the RBI is prepared to be a bit more amenable to allowing some volatility in the currency? Absolutely, Paul. So last week, dollar rupee moved from, it had been trading with the wall level of less than 2% and we saw a 1% move higher in dollar rupee in three days. So that set a lot of excitement in the market with clients looking at hedging. A lot of long rupee positions had built in ahead of this index inclusion and the way rupee had been behaving very nicely. We saw some stops also go through. What it does tell us is that RBS tolerance for a bit more volatility in rupee has embarked. We think this continues. What we’re looking out for is whether this tolerance is more towards rupee weakening than letting rupee appreciate. They have continued to amass reserves. Their reserves now stand at six, $50 billion. We think that may continue. So yeah, stable rupee, stable dollar rupee is the way to go. We don’t expect it to rupee to appreciate materially. But yes, definitely more volatility in dollar rupee.