BlackRock Boosts India Bond Holdings on Carry, Rate-Cut Room

  • Have an overweight position on India in our portfolios: Seth
  • Pimco last week said India, Indonesia are biggest overweight

BlackRock Inc., the world’s largest money manager, has been increasing positions in Indian local-currency bonds in the past two months, lured by attractive carry returns and the prospect for more monetary easing.

“In the current low interest-rate environment, the search for income continues,” Neeraj Seth, head of Asia credit at the firm, which oversees $5.1 trillion, wrote in an e-mailed response to questions. “India offers one of the highest yields within the Asian local bond markets, thus it provides an attractive carry (income) for investors.”

Borrowing in dollars to purchase rupee assets earned almost 3 percent since the end of June, the highest carry returns in Asia after Indonesia, data compiled by Bloomberg show. Indian consumer prices rose at the slowest pace in 13 months in September, data showed this month. That’s after a monetary policy panel on Oct. 4 cut the benchmark interest rate to the lowest in more than five years.

“Given softening inflation, there is room for further monetary easing to support growth, which is positive for the local bond market,” Seth wrote. “We like the Indian local bond market, and we have an overweight position in our portfolios.”

Sub-zero rates in several developed nations have driven global funds to Indonesia and India, which offer the highest 10-year sovereign yields among major Asian markets. Policy makers’ success in improving public finances and spurring economic growth through monetary easing has further boosted investor confidence in their assets. The two nations are the “biggest overweight,” for Pacific Investment Management Co., Luke Spajic, the head of portfolio management for emerging Asia, said last week.

BlackRock also “likes” the Indonesian local bond market for similar reasons as India, and for the “positive sentiment coming from the tax amnesty program which is gaining traction,” Seth wrote. “The high income from bond coupons would also provide cushion against potential downside moves in bond prices and FX” for the two countries, he added.

The yield on India’s benchmark government notes due in a decade rose three basis points to 6.76 percent in Mumbai. Its close of 6.67 percent on Oct. 5, the day after the rate decision, was the lowest since June 2009. The rupee weakened 0.2 percent to 66.81 per dollar, taking its decline this month to 0.3 percent. It climbed 1.4 percent last quarter.

Rupee sovereign debt has handed investors a return of 8.4 percent in the past six months, the highest in emerging Asia, while rupiah notes returned 6 percent, Bloomberg indexes show. India’s government forecasts the world’s fastest-growing major economy to expand as much as 7.75 percent in the year through March 2017.

“It might be challenging to maintain such level of growth rate, given weaker private investments and limited room for government capital expenditure due to fiscal constraints,” Seth wrote. “Having said that, the improvement in consumption, lower inflation, and accommodative monetary policy should be supportive for the economy.”

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