Local markets rallied as the election results showed the Bharatiya Janata Party cruising to a comfortable majority with 296 seats out of a contested 538, defeating the opposition Congress and its allies.

But offshore bonds were steady and traders said it was largely due to shrinking liquidity and a dearth of corporate issues.

Even an upgrade of the outlook on the country's debt ratingby Moody's Investors Service on Thursday failed to have an impact.

Moody's revised the rating outlook to positive from stable and a Moody's official said late on Thursday the improvement was based on the promise of increased political stability and economic reform, not on the strength of the economy.

A Standard and Poor's analyst agreed the new government may be more stable and able to push through reforms, but said progress on the fiscal deficit was needed before revising ratings from stable.

"The ratings and the poll outcome are no doubt positive news. But we don't see a lot of secondary market transactions in Indian paper," an official at Bank of America's fixed income desk in Hong Kong said.

"Spreads have tightened very marginally by five basis points."

The Reliance Industries 9.375 per cent 30-year bond, which is considerably more liquid than the rest, was traded at 435/400 basis points over the US treasury yields compared with a spread of 445/415 on Wednesday.

But other issues were little changed.

The ICICI Ltd 2.5 per cent April 2000 convertible bond was stable, though at a premium, at 98.0/100.0 per cent of the nominal bond value.

Traders said the bond was illiquid since it was approaching the redemption date.

Mahindra & Mahindra's 5 per cent 2001 convertible bond and Indian Petrochemicals Corporation Ltd's 2.5 per cent 2002 bonds are among others traded once in a while, bankers said.

"There is very little going on in the general market. But it is not because of a lack of demand from banks but because corporates have not been borrowing much overseas," Chris Vermont, global head of specialist finance at ANZ Investment Bank said.

Project finance deals were on the rise, particularly for power projects, but these were not traded much in the secondary market, he said.