Bond bull in India says factious RBI is no reason to flee market

By Anto Antony and Divya Patil


One of the largest banks in India believes investors can safely hold onto their sovereign debt as yields aren’t poised to rise soon, even with some policy makers starting to talk about tightening.

Investors shouldn’t worry about surprise losses and can keep their positions for now, as record low rates and an abundance of cash should help eke out more profit in coming quarters, Ashish Parthasarathy, treasurer at HDFC Bank Ltd., the country’s biggest lender by market value, said in an interview.

The veteran banker is staying bullish even after a schism appeared among Reserve Bank of India members last month about how long ultra-easy policy can remain. Markets globally are becoming edgier about a tapering of asset purchases after comments on normalizing policy from central bankers, including some at the European Central Bank.

In India, “we are just not in an accommodative mode, we are in a super-accommodative mode,” said Parthasarthy, who’s worked in trading for more than three decades. “Every central bank, including India, wants to see sustainable growth and will ignore larger inflationary pressures.”

He’s sticking with this view even after minutes from the RBI’s latest board meeting revealed division. Yields on 10-year government bonds jumped to 6.26%, the highest in more than a year, in the days after the release. They’ve since pulled back to 6.19%.

HDFC Bank’s treasury, which manages over 5 trillion rupees ($68 billion), has been spreading out its bets across the yield curve, Parthasarathy said. Medium- to longer-tenor bonds look more attractive than shorter-maturity notes.

The Mumbai-based bank doesn’t rule out any further downside in 10-year yields, he said. That puts it at odds with the consensus for benchmark yields to inch up toward 6.33% by year end, from 6.2% now.

“This has been one of the easiest times to run a bank treasury as we can hold for a long time. You know that money is going to be easy, liquidity is going to be available, and any reversals will be slow and steady,” Parthasarathy said.

Here are more of his views:

• On government borrowing: “Revenue collection is good. If the government manages to meet disinvestment targets, they won’t need to borrow more this year, and they might move into next year with cash balances. Bonds will benefit from that.”
• Advice to rupee borrowers: “Companies which need money in an up to five-year tenor have an advantage in borrowing now, as we have reached the bottom of the interest-rate cycle.”