Author: Rasmita Jena

Recently, India’s bond market has been in the spotlight due to the Reserve Bank of India’s (RBI) efforts to help the economy grow. While other countries faced market ups and downs, India’s bond market stayed stable. In February, the yield on the 10-year government bond increased slightly by 3 basis points (bps), while US Treasury yields dropped significantly as worries about slow global growth intensified.

Experts believe that Indian bond yields will likely go down in the coming months because of the RBI’s actions. A report from Axis Mutual Fund suggests that we could see small interest rate cuts of 25-50 bps over the next 6-12 months, starting with a 25 bps cut in the April meetings.

The RBI has also decided to delay new liquidity rules until March 2026, giving banks more time to manage their cash flow without any major disruptions.

What Happened in February?

February was an important month with many policy changes. The RBI took steps to improve liquidity by auctioning $10 billion in currency swaps. They also cut the repo rate by 25 bps, starting a trend toward lower interest rates.

Despite these positive measures, the 10-year Indian government bond yield rose slightly, showing that investors are still cautious. On the global scale, US Treasury yields dropped by 33 bps to 4.21% due to worries about slowing US growth. Additionally, the rupee fell by 1% against the US dollar, mainly because of Foreign Portfolio Investor (FPI) outflows and a stronger dollar. However, Axis Mutual Fund believes the rupee may stabilize around these levels.

Key Economic Highlights

– Inflation is Decreasing: The general price rise (inflation) fell to 4.3% in January from 5.2% in December 2023, thanks to cheaper food prices. Core inflation has stayed below 4% for over a year and may decline further to 3.8% by the end of the year.

– GDP Growth is Improving: India’s economy showed a growth rate of 6.2% in Q3FY25 (up from 5.6% in Q2FY25), fueled by strong consumer spending and government expenses.

– US Treasury Yields Are Down: US Treasury yields decreased by 35-40 bps in February as slow economic growth raised concerns, with the Federal Reserve reducing its bond supply by $40 billion monthly.

What Lies Ahead for India’s Bond Market?

Looking forward, Axis Mutual Fund predicts that investors expect more rate cuts and additional support for the economy from the RBI. The RBI is likely to work on keeping overnight interest rates stable, ensuring favorable liquidity conditions. With the current 10-year G-Sec yield around 7.08%, it’s expected to drop to around 6.5% over the next six months. Demand for government bonds remains strong, which should help boost their prices.

Advice for Investors

With interest rates expected to fall and economic conditions remaining stable, long-term bonds could be good investments. Axis Mutual Fund advises investors to maintain a longer duration in their portfolios, as yields are likely to decrease gradually. For those looking for extra gains, longer bonds could see significant price increases after further rate cuts.

Investors should consider focusing on short- to medium-term funds with a tactical approach toward government bonds, as yields are predicted to stay attractive soon.

Potential Risks Ahead

While the outlook for India’s bond market appears good, there are some risks to consider:

1. Currency and Liquidity Issues: Short-term changes in the rupee’s value and ongoing lack of liquidity could be problematic.

2. US Inflation Policies: If the US adopts inflationary measures, it might strengthen the dollar and lead to capital leaving emerging markets like India.

3. China’s Economic Recovery: A booming economy in China could draw global investments away from India, affecting liquidity and future growth.

(Disclaimer: The opinions, views, and suggestions made in this article are those of the experts and do not reflect the views of Thellv.news)

Shares of Indus Towers dropped by 8% on Wednesday, reaching Rs 314.70 on the National Stock Exchange (NSE). Investors are worried about how the company’s tower business might be affected after big telecom companies like Bharti Airtel and Jio Platforms (JPL) made deals with Elon Musk’s SpaceX. This partnership will bring Starlink’s fast internet services to customers in India.

Many people sold Indus Towers shares, with more than 1.2 crore shares traded around 2 pm. Bharti Airtel’s shares also lost some value after news broke that SpaceX is collaborating with Jio too. Airtel shares were priced at Rs 1,635.70, down by Rs 27.25, or 1.64%.

This collaboration is important because Airtel, led by Sunil Mittal, has previously had disagreements with Starlink about costs and fees. Additionally, Airtel is the biggest investor in Starlink’s competitor, Eutelsat OneWeb, owning a 21.2% stake. OneWeb is waiting for permission to operate in India.

Airtel’s Managing Director, Gopal Vittal, called the deal with SpaceX a big step forward and expressed that it shows Airtel’s commitment to improving satellite internet for customers. This partnership will help Airtel provide better broadband services in India.

JPL’s deal with SpaceX will help launch Starlink’s satellite internet in India, likely changing the game for the satellite communication market in the country. This agreement still needs SpaceX to get approvals to sell Starlink in India. Jio and SpaceX are looking at how Starlink can expand Jio’s services and how Jio can help SpaceX reach customers better.

(Disclaimer: The opinions and views expressed in this article are those of the experts and do not represent the views of Thellv.news)