Bonds of companies controlled by billionaires Sunil Mittal and Mukesh Ambani, added in August to Goldman Sachs Group Inc.’s most-favored list, helped investors to the biggest gains in 20 months for India’s dollar debt.
Notes of the nation’s issuers returned 5.6 percent since Aug. 30, according to JPMorgan Chase & Co.’s Asian Credit Index, poised for the best performance since a 7.9 percent advance in the first two months of 2012. The premium investors pay over Treasuries has slid 57 basis points in the period, the biggest decline after Indonesia and Pakistan among 13 Asian markets.
Investors are signaling their faith in Indian borrowers after the central bank stemmed a rout in the rupee and companies in the benchmark S&P BSE Sensex index of shares surpassed or matched profit forecasts. Indian debt also rallied on bets the Federal Reserve will delay tapering its record stimulus that has buoyed emerging-market assets.
“There is some positivity after the earnings,” Philipp Good, who manages $800 million including Indian debt in Zurich at Fisch Asset Management Ltd., said in an Oct. 22 telephone interview. “Investors are probably of the opinion that impending risks to India and emerging markets have receded, therefore the bonds become more appealing in the short term.”
Mittal’s Bharti Airtel Ltd. andAmbani’s Reliance Industries Ltd. are the only Indian companies on Goldman’s most-favored list of Asian credit, an Oct. 16 report by the U.S. bank shows. The lender added them on Aug. 26 amid a selloff in emerging-market debt triggered by speculation the Fed will cut its monthly bond purchases.
Bharti’s 5.125 percent notes maturing March 2023 have returned 6.5 percent this month, data compiled by Bloomberg show, the most among 67 Indian bonds included in JPMorgan’s Asian Credit Index. The yield fell to 5.93 percent from a record 8.04 percent on Aug. 22.
Reliance’s 5.4 percent bonds due February 2022 gained 4.3 percent in October, pushing the yield to 4.94 percent from an unprecedented 6.088 percent on Aug. 22.
Net income at nine 30 Sensex members, including Reliance, that have published results for the quarter through Sept. 30 met or beat forecasts, data compiled by Bloomberg show. About half of them trailed forecasts in the April-June quarter. Bharti reports Oct. 30.
“Earnings have surprised and may have prompted some rethinking,” M. Narendra, Chairman of Chennai-based Indian Overseas Bank Ltd., said in a telephone interview yesterday. “The rupee’s reversal has also brought back some optimism. The economy and markets were probably not on as weak a footing as they were made out to be.”
The average of insuring bonds eight Indian issuers against non-payment using credit-default swaps has dropped 58 basis points from this year’s high of 395 touched last month, according to CMA data, the day the Reserve Bank of India unexpectedly raised borrowing costs for the first time since 2011. The RBI will raise the repurchase rate by 50 basis points, or 0.50 percentage point, to 8 percent at its Oct. 29 meeting to contain inflation induced by food prices, Deutsche Bank AG said in an Oct. 16 report.
The rupee has climbed 12 percent from its record-low reached on Aug. 28, the most among Asia’s 11 most traded currencies. It was little changed today at 61.56 per dollar as of 1:54 p.m. Mumbai, according to prices from local banks compiled by Bloomberg. Benchmark 10-year sovereign yield fell four basis points to 8.60 percent.
While returns on Indian corporate debt have rebounded from a four-month slump that ended in August, foreign investors still need to negotiate several “risk events,” Desmond Soon, a Singapore-based money manager at Western Asset Management Co., said in an interview yesterday. These include national elections due in 2014 and the start of the Fed’s tapering, he said
Indian companies have raised $25.6 billion in overseas loans and bonds this year through Oct. 22, 14 percent more than a year earlier. HDFC Bank Ltd. completed a $500 million of three-year notes offering yesterday.
The average yield on Indian dollar debt fell to 5.55 percent on Oct. 23, according to a JPMorgan index, the least since Aug. 1. That compares a 9.53 percent average for five-year rupee notes, indicative yields compiled by Bloomberg show.
“Indian corporate asset prices will benefit as risk appetite is increasing gradually,” said Zsolt Papp, who helps oversees $2.6 billion of emerging-market debt at Union Bancaire Privee in Zurich. “Pessimism is waning.” Non-bank securities are likely to outperform lenders, he said by phone on Oct. 22.