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Informist, Monday, Oct. 13, 2025

MUMBAI – Current yields on Indian government bonds make these securities attractive to purchase, the Singapore-headquartered DBS Bank said Monday in a media briefing on its investment outlook for Oct-Dec. The bank also expects foreign inflows to return to Indian equities if valuations of Chinese stocks go up, owing to strong fundamentals such as good growth and liquidity in India, the bank's top investment strategists said.

"I think onshore in India, inflation is generally a bit more subdued already," Daryl Ho, senior investment strategist, DBS Bank, said. "So there could be a case of buying into Indian government bonds simply because the yields are pretty decent, right? At 6.5% on the 10-year local currency bond, I think it looks quite attractive." However, Ho said Indian government bonds currently face competition from US Treasury notes, as the 10-year US Treasury note currently offers a yield of around 4%. Indian gilt yields were more attractive when US yields were around 1-2%, Ho said.

As for India's inclusion in Bloomberg's Emerging Market Local Currency Indices, Ho said the bank has not seen aggressive setting up of funds tracking the index. "...I think not a lot of funds have been set up with reference to this new index that Bloomberg created," Ho said. "Perhaps they want to watch and see a bit more of a longer track record."

In a broader perspective on the fixed income segment globally, the bank advised against investing in ultra-long-duration bonds, saying there is "material risk" in these tenures. While short-term US bond yields have fallen since the US Federal Reserve began cutting interest rates in September 2024, the 30-year US bond yield has not matched that fall, the bank said.

"The risk is that when the yield curve steepens and the two(-year), 30-year spread widens to prior highs of 300 to 400 basis points... there will be material price risk to the ultra-long maturity bonds," Hou Wey Fook, chief investment officer, DBS Bank, said. "So, our advice to our clients is to avoid the ultra-long bonds in the area of 20- to 30-year maturities."

Wey Fook also said that based on historical trends, the bank expects the assets under management of money market funds to fall as the US Federal Reserve eases interest rates. This would lead to a migration towards bond funds, especially in short-term bonds, he said. The bank recommended that its clients "really move out further" into the yield curve in the 1-year to 3-year segment as an alternative to cash and money markets.

As for equities, DBS Bank said in its webinar that the premium valuations of Indian stocks are the reason why foreign investors are withdrawing their investments, especially from banks and technology companies. Other factors are the depreciation of the rupee against the dollar and China's cheap valuations, it said. "But we think that when valuations in China start to go up, flows will actually come back to India," Joanne Goh, senior investment strategist at DBS Bank, said. "Because we think that the domestic liquidity and domestic growth is still very strong." In India, domestic investors have cushioned equities via investments through pension funds and mutual funds.

"...on valuations, we always say that India is expensive and China is trading at probably half (the) times of India equities...," Goh said. "India actually has a very strong growth that can support its valuations," she added. "So if you look at some of the banks and also some of the tech stocks, ...they are actually trading at a lot of higher valuations, but earnings growth is strong." So far in October, foreign investors have offloaded shares worth INR 2 billion from India. In September they had offloaded Indian equities worth INR 331.31 billion.  

The depreciation of the rupee against the dollar has also affected foreign investor sentiment, the bank said. A weak dollar benefits Asian currencies, but the rupee has continued to depreciate, Goh noted. The Indian currency had hit a record low of 88.8025 against the greenback on Sept. 30. This is also one of the reasons why foreign investors prefer China to India right now, Goh said.  End

Reported by Cassandra Carvalho and Gopika Balasubramanium

Edited by Rajeev Pai

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