Yields on the sovereign benchmark eased somewhat to 6.83% on Monday as prices of crude oil softened, to levels of $84-85/barrel, after having hit an intra-day high of 6.88%.
Yields had moved up for three straight sessions to Friday as markets were disappointed Bloomberg Index Services had deferred India’s inclusion in its Global Aggregate Bond Index. This is the second time that Bloomberg has held back from including Indian bonds.
Gopal Tripathi, Head (Treasury), Jana Small Finance Bank, said the counterbalancing forces at play, resulted in yields ending Monday’s session virtually flat over Friday’s close of 6.84%. “The postponement of India’s inclusion in the Bloomberg Index exerted upward pressure while the fall in oil prices helped pull yields down,” Tripathi said.
Market participants observed that had India been included, an estimated $20-25 billion would have flowed into the market, albeit after about a year. This estimate is based on India’s weight of 0.8% in the index. In the interim, however, existing investors may have topped up their holdings.
Bloomberg Index Services had said on Friday it needs more time to ensure recent market reforms are fully embedded in trading and operational practices.
Madhavi Arora, Chief Economist at Emkay expects yields to trade in the range of 6.7-6.8% unless there is a sharp spike in prices of crude oil.
Tripathi expects benchmark yields to trade in a band of 6.75-6.90% given the response to the special FCNR (B) deposit scheme has been encouraging. Data from Reserve Bank of India (RBI) shows Indian banks have mopped up $36.73 billion via the special FCNR (B) deposits scheme with the flows understood to have come in mostly from West Asia. A total of $40.82 billion in foreign exchange has been received until July, 31 through the RBI’s three concessional swap schemes.