Fundview: India's ICICI Prudential Life bullish on long-term govt bonds, official says

Icici Prudential Life Insurance

04/09/2024 05:01

By Dharamraj Dhutia
       MUMBAI, Sept 4 (Reuters) - Indian private insurer ICICI
Prudential Life Insurance plans to raise investments in longer
duration federal government bonds, including the 10-year
benchmark, as the demand-supply outlook is "quite favourable", a
senior official said on Wednesday. 
    "Given the long-term nature of the life insurance business,
we have larger investments in the 10-year segment and the long
bonds (30-40 year government bonds), with the 50-year government
bonds being used for managing our annuity products," said Ketan
Parikh, head of fixed income investments at the insurer, which
manages debt assets of more than 1.62 trillion rupees ($19.30
billion). 
    India aims to gross borrow 14.01 trillion rupees this
financial year to meet a fiscal deficit of 4.9% of gross
domestic product. Debt auctions have seen a good response amid
demand from foreign and long-term investors. 
    ICICI Prudential Life is keen on buying federal government
bonds as the additional returns offered by state government and
corporate bonds have diminished, Parikh said. 
    Bond yields will fall gradually as market positioning is
"quite heavy", and as India's monetary easing cycle may be
shallow, the fund manager said. 
    The Reserve Bank of India could cut the key repo rate by
50-75 basis points in this cycle, unlike the U.S., where
cumulative rate cuts of 225 bps are being priced in, he said. 
    India's central bank has kept interest rates on hold for
nine consecutive meetings as it aims to lower inflation to
target amid food price-led spikes.
    ICICI Prudential Life's Parikh expects the gap between
yields on 10-year and 40-year bonds to narrow on demand from
insurance companies and other long-term investors, and as
interest in derivatives like forward rate agreements has picked
up. 
    Private insurance companies have been absorbing 25%-30% of
the supply of long bonds through forward rate agreements and
STRIPs, Parikh said. STRIPs are bond instruments that dealers
"strip" to sell principal payment and coupon rates separately.
    India's 10-year benchmark bond yield  IN071034G=CC  was at
6.86% on Wednesday, while the 30-year  IN30YT=RR  and 40-year
bond yields  IN40YT=RR  ended around 7.01% on Tuesday.
   

($1 = 83.9520 Indian rupees)

 (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
 ((Dharamraj.Dhutia@thomsonreuters.com;))