Manish Wadhawan, MD and head-interest rates, HSBC India gave his views on the bond market and on why yields fell.
Manish Wadhawan, MD and head-interest rates, HSBC India gave his views on the bond market and on why yields fell.
Below is the verbatim transcript of Manish Wadhawan's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18
Sonia: According to you what are the main reasons for which the bond yield has fallen and what level do you see the yield touch now?
A: Two important events have taken place. One is the policy wherein governor clearly mentioned that the probability of the rate hike is nearly negligible and whenever inflation gives a chance there would be an easing bias that has definitely led to a change in sentiment and this lowering of yields.
The other very important factor is the foreign institutional investor (FII) buying in the last one-and-a-half month which is about Rs 30000 crore since the beginning of May 1. So, these two reasons in combination have has led to this kind of rally and over and above this there is a shop and there is a belief that inflation has peaked out and you would see some kind of better macro economic numbers, these are the reasons why you have seen the yields going down.
Latha: At what level will you be selling? 8.5 percent is good enough for you to sell?
A: I would say 8.5 percent is a level where markets would consolidate, we were expecting this and it might consolidate for a few more days here but I don't think so one has to take a call on bonds to sell in historical perspective of 2013 because you have seen yields on 9 percent. Till the budget the market would be in a positive mode because we all want to see what kind of budget gets presented by the new government, are they living up to the fiscal consolidation and the inflation numbers, you might see some kind of profit taking at these levels as you are suggesting but I don't think so that yields would back up too soon too much because there is a lot of supply which has been taken away by the FIIs and we are still seeing a lot of interest by the FIIs in India on account of rupee and on account of the rates.
Latha: So you mean even before the budget you can see 8.5 percent getting taken? I mean you could see 8.4 something getting taken?
A: The bias is quite positive at the moment and as I mentioned to you that if you look at the numbers since May 1, debt has attracted something like Rs 30000 crore and equity has attracted only Rs 15000 crore and the amount of rally which has happened in equities, debt has underperformed quite a lot in the last one year because of whatever scars we had of 2013 the bias towards rupee is quite positive still with FIIs and the overall sentiment in terms of macroeconomic environment. If inflation is expected two inch lower and lower and if Reserve Bank of India (RBI) is able to reach its goals of what they are talking about then you might see some consolidation but the bias would remain positive and yields can drip down lower in the next one-two more months.
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