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Informist, Monday, Dec. 2, 2024

By Sachi Pandey

MUMBAI – Market participants were taken by surprise after the GDP print, released on Friday, came sharply below expectations, dealers said. India's GDP growth fell to a seven-quarter low of 5.4% in the quarter ended September due to a slump in the growth of industrial activity, data released by the National Statistical Office on Friday showed.  

Following these announcements, the debt market reacted, leading to a fall in long-term bond yields of government securities and, consequently, corporate bonds, dealers said. Yields on corporate bonds maturing in three years slipped by 6-7 basis points, tracking a rally in government bond yields, dealers said. The 10-year benchmark gilt yield fell to its lowest since Sept. 26. Yields on government bonds ended at 6.7086% on Monday, compared to 6.7416% on Friday.

Yields on five-year and 10-year government bonds showed a marginal dip due to limited trading activity. "For longer-tenure bonds there is not much supply and there is no trading also on those bonds. People have taken and kept those bonds but no one is selling it now," a dealer at a large-sized brokerage firm said. 

Meanwhile, this subdued GDP data has fuelled speculation about a potential 25-basis-point rate cut by the Monetary Policy Committee in its upcoming meeting. The RBI had forecast GDP growth at 7% for the July-September quarter, while market expectations ranged from 6.3% to 6.5%. But now this disappointing print has led traders to anticipate an earlier-than-expected rate cut, possibly in December instead of February.

However, not all traders are convinced of an immediate rate cut, given the latest CPI inflation figure of 6.21% for October, which exceeds the RBI’s 2-6% comfort range.

The three-day MPC meeting begins Wednesday, with RBI Governor Shaktikanta Das set to announce the outcome on Friday.

"All eyes are on the RBI policy now," said a vice president of debt capital markets at a large brokerage. "The governor might take a dovish stance, but a repo rate cut seems unlikely for now. They might do something like hit on CRR (cash reserve ratio) or the liquidity. Maybe he will announce OMO (open market operations). This could be the first step and probably the next policy they might cut rates," a vice president of debt capital markets at a large sized brokerage firm said. 
 

A fund manager at a large mutual fund house offered a contrasting perspective, saying, "Inflation concerns have been thrown out of the window for now. And people are focusing on the GDP numbers. Let's see how RBI will push the policy,"

While opinions on a rate cut remain divided, market participants believe at least one more MPC member, along with external member Nagesh Kumar, might vote in favour of rate cut this time.

Meanwhile, in the secondary market, mutual funds and banks were highly active Monday. The majority of the activity was seen on the shorter-end of the curve, while the longer-end remained largely flat. Trading volumes improved Monday with deals worth INR 121.31 billion on the National Stock Exchange and BSE, compared with INR 71.53 billion recorded on Friday. 

Bonds that changed hands on the bourses included those by HDB Financial Services, Small Industries Development Bank of India, UltraTech Cement, Indian Renewable Energy Development Agency, Astrum Value Homes, ICICI Home Finance Company, State Bank of India, HDFC Bank, and National Bank for Financing Infrastructure and Development.

The primary corporate bond market, however, stayed quiet on Monday, with no major issuances lined up. Market experts expect issuers to remain in a 'tight-zone' until the MPC meeting outcome, after which primary market activity is likely to pick up.

UDAY BONDS

In the secondary market, Rajasthan's Ujwal DISCOM Assurance Yojana bonds worth INR 2 million, maturing on Jun. 23, 2026, were traded at a weighted average yield of 7.1559%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed.

End

Edited by Akul Nishant Akhoury

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