India’s issuance calendar for 2HFY27 showed that the full-year’s gross borrowings will be maintained along expected lines, as upward pressure on subsidy payouts is offset by stronger revenue collections (see note). The scale of 2H borrowing was pegged at INR 7.86trn, taking full year to INR 16trn (vs budgeted INR 16.1trn), after accounting for the switch auctions. The tenor breakdown showed that the highest share of supply will be around the benchmark 10Y at ~26% of the total, 14-15Y at ~17.6%, more than 30Y at ~28%, and 3 to 7Y making up for the rest. Focus on longer end bonds are also intended to raise the weighted average maturity of the stock, lowering rollover risks.
On the demand end, domestic institutions are likely to be in the driver’s seat, while the central bank is on the other side of the equation in midst of ongoing liquidity measures. Foreigners have trimmed exposure, with ~$1.3bn outflows this month, narrowing the FYTD purchases to ~$6bn. The larger supply of the benchmark paper comes at a time when rates have hardened, tracking elevated global yields, though the shift has been orderly. Hence, even as lower supplies bode well for the bond markets, the backdrop of elevated DM yields lowers the likelihood of INR 10Y rate retracing below 7% in the near-term.
Concurrently, high oil prices and firm dollar index have kept the rupee under pressure. USDINR’s attempts to decisively break above 96,00 have been thwarted by the central bank’s steady intervention. Testament to this, foreign reserves declined sharply by $14.9bn over the past week to USD 765.9bn. Authorities see reserve accumulation as a means of defending market stability, reducing the risk that a break of key rupee levels would trigger a larger correction driven by hedging flows and speculative positioning. Global drivers will continue to exert depreciation pressures on the local unit this week.
On the data front, August IIP was buoyant at 8% yoy on a lower base from a revised 7.4% led by manufacturing and utilities, which was also mirrored on the investment-side breakdown – in capital goods, intermediate and durables output. This adds to broader optimism on the ongoing cyclical recovery, accompanied by firm exports, strong credit growth, pick up in indirect tax collections, PMIs and corporate earnings. 
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