Fundview: Indian investors should buy 10-year bond around 7.45% - Star Health's Srivastava

Star Health and Allied Insurance

03/02/2023 06:08

By Dharamraj Dhutia
       MUMBAI, Feb 3 (Reuters) - Indian investors should wait
for the 10-year benchmark bond yield to rise at least another 15
basis points before adding positions in the paper, a top
executive at Star Health and Allied Insurance Co said on Friday.
    The benchmark 7.26% 2032 bond yield was at 7.29% on Friday,
having eased to 7.24% the day before, after the government
pegged its borrowing target for the next fiscal below estimates,
calming nervous investors.
        "Investors should wait for the central bank to hike the
repo rate and slowly shift to the 10-year part of the curve once
yield is at 7.45%," Star Health and Allied Insurance chief
investment officer Aneesh Srivastava said. 
     The 7.45% level could stay put for over the next three
months once fresh supply starts, with levels of 7.25% "very
tough to be broken on the downside," Srivastava, whose firm 
manages debt assets of around 120 billion rupees ($1.46
billion), said. 
    Even though the government's bond supply is lower than
estimates, it remains elevated as compared to the current year,
raising concerns about demand and supply dynamics for the next
year, various traders have said. 
    Srivastava was not ruling out the possibility of the Reserve
Bank of India hiking its policy repo rate once more in addition
to a raise at its next meeting on Feb. 8, for which markets have
priced in a 25-basis-point rate hike. 
    He also expects the Fed to raise rates by another 50 basis
points to take the terminal rate at 5.00%-5.25%.
    "We expect the RBI to hike repo rate by 25 bps next week,
followed by a similar action in April, as core inflation
pressures still exist," the investment official, who and sees
terminal repo rate at 6.75%, added. 
     The rise in policy rate will push the benchmark bond yield
higher in the new financial year, which would be a good time for
investors to accumulate duration. 
    "Interest rate is expected to remain at peak level in
foreseeable future. We may not move lower in a hurry," he said. 
($1 = 82.2420 Indian rupees)
 (Reporting by Dharamraj Dhutia; Editing by Nivedita
Bhattacharjee)
 ((Dharamraj.dhutia@tr.com))