INR Rates: India’s onshore markets prove resilient, eye FOMC decision
India’s markets have held their ground this quarter, diverging from global price action and faring better than most regional peers. Benchmark equity indices have proved to be resilient, heading towards record highs and are amongst the handful in the region with net gains year-to-date (ytd). In dollar terms, Nifty/ Sensex is down 4.0% ytd, less than double-digit fall in Philippines, China, Thailand, and Malaysia, whilst also outpacing the MSCI EM this quarter. Host of drivers are behind this outperformance, including the rising presence of retail investors (no. of demat accounts surpassed 100mn in Aug vs 40mn in Mar20), net foreign inflows since July (~$8.1bn), strong corporate earnings, deleveraged books, relative attractiveness vs sobering growth outlook in other major countries and structural tailwinds, amongst others. While spill-over of global economic slowdown and upcoming Fed action are risks, expensive valuations have not shaken the optimism.
Separately, INR bonds have benefited from a pullback in crude oil prices and anticipation of bond index inclusion (read India: Optimism over bond index inclusion resurfaces). 10Y (generic) bond yield is down ~40bp vs Jun’s high. Apart from banks’ stepping up bond purchases, demand has risen from insurance companies, provident funds, and foreign investors (front run index hopes). Supply fears have receded as the borrowing plan for 2HFY23 (Sep to Mar23) is likely to stay on track with ~INR5.9trn (or be marginally cut), in light of strong revenue collections. By contrast, short-end (2Y) and money market rates have risen, with surplus liquidity falling below INR 600bn owing to lower government spending and tax related outflows, vs INR3.6trn in late-Jun. The short end might stay buoyant as expectations rise that the RBI might consider a third consecutive 50bp hike next week. Strong intervention presence has meanwhile kept the USDINR in a narrow 79-80 range. While the authorities continue to show a hand on both sides of the range, drawdown of the forwards book (-$43.8bn since Mar), apart from the reserves stock (-$90bn from record high), is likely to see the central back stay opportunistic in its intervention presence. This implies that the currency might adjust along with the regional peers if the shift is triggered by a wave of broad dollar strength or a bout of risk-off move. Encouragingly, the rupee has consistently been in the middle-to-upper quotient of the Asian FX pack on year-to-date performance, outdoing many regional peers. Shifts in global risk sentiments, upcoming FOMC rate decision and rising US real yields are under watch.
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.