BackBond prices rise to 13-month high as NDA leads in over 300 seats
The rupee also strengthened against the US dollarThe 10-year bond yield softened to 7.201%
PremiumIndia's 10-year bond prices hit a 13-month high on Thursday after latest trends showed NDA leading in over 300 seats. The 10-year bond yield was at 7.201% - a level last seen on 6 April 2018 – compared to Wednesday's close of 7.26%. Bond prices and yields move in opposite directions.
DBS in a report said that if the BJP and its allies return to power with a majority, it bodes well for policy/reform continuity and will be welcomed by markets as it addresses a key domestic event risk.
"Ability of the markets to sustain gains will, however, require: actual poll outcome to be close or better than exit polls suggest as a return of the ruling coalition is likely to be priced in; global catalysts, particularly oil prices and US-China trade dispute, both of which are unfavourable at this juncture. We expect the Indian rupee to weaken past 70 again considering global risks, gains on effective exchange rate terms and domestic drivers – need to get fiscal consolidation back on track and rely on monetary policy to support growth," DBS report added.
On Sunday, exit polls forecast that BJP and allies are likely to secure over 300 seats in India’s 543-seat lower house.
"General expectations were that the government would need to maintain reform momentum and focus on employment generation and the rural economy. Our base forecast assumes policy continuity. In the near term, simplifying of the GST, support for the rural economy (assured income support of ₹6,000/year/farmer, affordable housing and health schemes), boosting public infrastructure capex and strengthening the banking system are likely to be key priorities," said brokerage firm UBS in a 22 May report.
"However, the economy is experiencing a cyclical growth slowdown and momentum should remain sluggish until H1 FY20E. We believe headwinds such as tighter financing conditions (led by the NBFC sector), lower fiscal headroom and sluggish disposable income have weighed on consumption growth", UBS report added.
In the US, Federal Reserve officials judged at their latest meeting that their patient approach to interest-rate change would be appropriate “for some time," and many sided with Chairman Jerome Powell’s view that the recent dip in inflation was probably temporary.
Back home, the rupee traded at 69.47 a dollar, up 0.29% from its previous close of 69.67. The Indian currency had opened at 69.50 a dollar. The currency has gained in eight of last 10 trading sessions.
So far this year, the rupee has risen 0.13% against the US greenback. During the period, foreign investors bought $9.51 billion in Indian equities and sold $446.80 million in debt market.
(Bloomberg contributed this story)
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