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Informist, Monday, Oct. 28, 2024

 

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--Anand Rathi Global's Sahni:Enhanced access to NDS-OM big move for bond mkt
--CONTEXT:Remarks from interview with Anand Rathi Global treasury head Sahni
--Anand Rathi Global's Sahni: Direct NDS-OM access to boost trading in gilts
--Anand Rathi Global Sahni:Gilt trade via indirect NDS-OM access challenging
--Anand Rathi Global Sahni:10-, 5-yr gilt spread can easily rise to 20-25 bp
 

 

By Aaryan Khanna and Siddharth Upasani

 

NEW DELHI – The Reserve Bank of India's recent decision to give direct access to the Negotiated Dealing System-Order Matching system to more entities is a big move that will help the bond market grow in size, according to Harsimran Sahni, Anand Rathi Global Finance Ltd.'s head of treasury. Sahni, who manages a book comparable to that of a small private bank, said trading activity of non-banking finance companies and brokerages should increase significantly once they get a Subsidiary General Ledger account with the Indian central bank.

 

"Banks and primary dealers are not realising (it) because they have the direct Subsidiary General Ledger (access already)," Sahni told Informist in an interview.

 

Government securities are kept in the holder’s Subsidiary General Ledger, or SGL, account maintained with the RBI. Meanwhile, the Constituent Subsidiary General Ledger account, or CSGL, is a segregated Subsidiary General Ledger account used by financial institutions with direct access to the NDS-OM to keep securities on behalf of their customers. This constitutes indirect access to the trading platform. Currently, only four non-banking finance companies have direct access to NDS-OM: Edelweiss Group’s ECL Finance, IIFL Wealth Finance, JM Financial Products, and Nuvama Wealth Finance.

 

On Oct. 18, the RBI expanded the eligibility criteria for entities that can directly access NDS-OM to all non-banking finance companies, including housing finance companies, among others. By doing away with the technical and financial criteria applicable earlier, the new directive allows companies such as Anand Rathi Global Finance to apply for access.

 

Sahni thinks newly-eligible entities will jump at the opportunity to trade directly on the NDS-OM as it will be more effective, efficient, and make operations smoother. While he indicated that Anand Rathi Global Finance will look to apply for direct access, he declined to provide a timeline for the move.

 

Sahni said the direct access will not only invite a wider pool of players to the bond market, but it will also increase participation by participants such as himself who face operational challenges in executing larger trade volumes. Anand Rathi Global Finance is responsible for about 5-6% of the daily trade volume in the 10-year paper, Sahni said.

 

"Operationally, it (indirect access) is very, very challenging because it's just like having a brokerage account with a bank," Sahni said. "A lot of the trade settlement that happens in the OTC (over-the-counter) segment, that process is slow. Also our experience--and this may not be an industry-wide experience--has been that sometimes the CSGL system gets stuck because we don’t have a direct line with the RBI.... Once you are on the RBI network, it will be fast and an advantage for people like us who are very active on the trading side."

 

NEW ERA FOR MARKET?

According to Sahni, an increase in the number of participants on the NDS-OM platform is expected to take trading activity in the government bond market to the next level. The yield curve has already seen noticeable change in the past several months, with more parts of the curve becoming liquid.

 

"Volumes are moving from the OTC (over-the-counter) market, which is via brokers, to the NDS-OM platform. That itself is changing dynamics. A lot of participants are now willing to participate on the NDS-OM platform rather than going to the OTC because of the hassles of OTC trades," Sahni said. This has resulted in the bid-ask spread on the 10-year gilt being among the lowest in Southeast Asia, he said.

 

"Generally, foreign banks were (previously) in liquid papers like 10- and 15-year bonds. Now, because of demand for 30- and 40-year bonds, they also have to trade them. That's the reason we see liquidity improvement across the yield curve," he added.

 

TIME RIPE FOR STEEPENER

Sahni prefers short-term bonds over adding long-term gilts in the near term, even with rate cuts in India delayed, as the current spread between the 10-year and the five-year bonds--currently only around 8 basis points--can "easily go to 20-25 bps in the near term".

 

Market participants have priced out an interest rate cut by the RBI at the Monetary Policy Committee’s meeting in December after an unexpectedly high CPI inflation print of 5.49% in September and recent comments by Governor Shaktikanta Das that a rate cut would be risky and premature at the current juncture. Sahni sees the first cut since 2020 being delayed to February or even April if commodity prices continue ticking up and adding to Indian inflation.

 

Another key factor is a steepening in the US yield curve once the US presidential election is held in the first week of November, quickly followed by the US Federal Reserve’s interest rate decision on Nov. 7. Both leading presidential candidates are expected to preside over expansionary fiscal policies, with Donald Trump seen spending more aggressively than Kamala Harris.

 

"If Trump wins, the US bond market is going to love it... because you are in the phase of monetary easing and fiscal expansion," Sahni said. "That should eventually lead to steepening of the curve."  End

 

Edited by Rajeev Pai

 

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