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Ananth Narayan of SPJIM says Indian sovereign bond issue would look attractive now

market | Jul 10, 2019 1:26 PM IST

Ananth Narayan of SPJIM says Indian sovereign bond issue would look attractive now

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A fresh issue of India's sovereign bond will look attractive as the coupon will be low and spreads even lower than countries with a similiar rating such as Indonesia, said Ananth Narayan

A fresh issue of India's sovereign bond will look attractive as the coupon will be low and spreads even lower than countries with a similiar rating such as Indonesia, said Ananth Narayan, professor at SP Jain Institute of Management and Research. "There will be scarcity value for Indian paper,” he said.

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Narayan explained that if you get money at 2.9 percent or 3 percent and you convert that into dollars by using the hedging market, you will pay a pretty high cost in rupee terms. The cost might be as much as 1 percent higher than where the government can borrow in the local currency market through government securities, he said.
"Therefore, arguing for the cost being lower is a bit of a smokescreen. The real cost on a fully hedged basis does not make sense. Mathematically, therefore, borrowing does not make sense,” he added.
According to him, there is good logic for options to be open for the government when it comes to borrowing.
“We already have about $240 billion of trade credits and ECBs outstanding. So somebody in the country is borrowing from overseas despite all the mathematics to fund growth in the country,” he said
“The point I am trying to make is in that USD 240 billion of trade credit and ECBs, the portion of sovereign debt is zero. The government does not go out and seek dollars or foreign currencies – that to me does not sound right. We are one of the only major countries not to have a sovereign bond,” added Narayan.
He further said that India has to have limited amounts when comes to borrowing from overseas. Therefore, there is no doubt that government and the RBI will be very prudential in overseas borrowings, said Narayan.
Speaking about the domestic market, Narayan said, “In the domestic market where foreign portfolio investor (FPI) participate, they are a bit player; they hold 30 percent of the outstanding debt of government bonds.”
“The by far bigger players are the government, RBI, banks, insurance companies, pension funds, all domestic players. By far 97 percent of the market is domestic. What will happen if you have a sovereign bond issuance and therefore bonds trading in the overseas market – that will be entirely held by overseas investors where they will have it bigger,” he further added.
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