Mumbai: Foreign investors have sold nearly $1 billion of debt in past five consecutive sessions on worries of higher bond supply, lower open market operation (OMO) purchases and uncertainty over more RBI rate cuts in the future.
Between 23 March and 3 April, foreign institutional investors (FIIs) were net sellers of $976.27 million in debt. From 1 March to 25 March, they bought bonds worth $2.62 billion after being net sellers of bonds worth $1.65 billion in January and February.
There are expectations of higher bond supplies with the government announcing a record borrowing programme to fund welfare measures ahead of the 2019 Lok Sabha elections, which begin on 11 April. The government will borrow ₹7.10 trillion in the year starting 1 April compared with ₹6.4 trillion forecast by a Bloomberg survey.
Indian bond prices have also been under pressure over uncertainties surrounding crude price movement and the election outcome. Crude has surged almost 40% this year as the Organization of the Petroleum Exporting Countries (Opec) and its allies have limited their output to counter record production by US shale producers.
“Markets went into Thursday’s review expecting a more dovish RBI, but received a more balanced review as the neutral stance was maintained. We nonetheless expect another cut in June/August. With the rate action behind us, more pertinent issues have returned, revolving around a strong supply pipeline and high oil prices, triggering modest profit-booking interests," said Radhika Rao, economist at DBS Bank.
On Thursday, RBI governor Shaktikanta Das cut rates in its second straight policy while maintaining a neutral monetary policy stance, reflecting the central bank’s concerns about sluggish economic growth in India and abroad. RBI revised its retail inflation projections downwards from its February estimates to 2.4% for fourth quarter of 2018-19 against 2.8% in February and 2.9-3% for the first six months of 2019-20 versus 3.2-3.4% earlier.
The central bank also cut gross domestic product growth projections to 7.2% for 2019-20 against the 7.4% estimated in February and the 6.8-7.1% in the first half of the current year.
“The dovish policy action has been guided by a soft inflation outlook and moderating growth prospects. A neutral stance is suggestive of a possible status quo at the next policy meet awaiting clearer signals on the election results, the final fiscal mathematic and prospects of the monsoon. However, the MPC (monetary policy committee) reiterated support towards sustained growth while ensuring price stability," said Edelweiss Financial in a 4 April note.
Bloomberg contributed to this story.