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    Expecting 10-year yields to hover at 6.50-6.75: Pankaj Sharma, DSP BlackRock

    Synopsis

    “Over the medium to long-term, we believe the rupee is a very strong currency.”

    ET Now

    Talking to ET Now, Pankaj Sharma, EVP & CIO – Fixed Income, DSP BlackRock, says as far as fixed income market is concerned. if credit growth comes back, we will be able to participate in high yields.

    Edited excerpts:

    I cannot ignore what is happening with the currency and with the kind of indications for what Janet Yellen may do going forward, how do you expect the rupee to shape up versus the dollar?

    The Indian currency is not the only one to have depreciated, other emerging market currencies have also depreciated. Essentially, it is the dollar strength that we have seen in the last 7-10 days. The fundamentals of the country continue to be good. We might have some depreciation in the near term but eventually over the medium to long-term, we believe the rupee is a very strong currency.
    We are going through a phase where some noise about oil and fiscal balances is creating some nervousness but otherwise our external balance sheet is very strong today.

    You are sounding quite bullish on the Indian economy even though we saw the growth in the first quarter coming at 5.7%. The GST collection data that came out two days ago, did not sound very encouraging and there was a bit of politics at play as well with Yashwant Sinha writing the op-ed and his son rebutting that today in the Times of India. Are you thinking that all these fears are overdone?

    GST is very big reform and India is a large country which was predominantly served by the unorganised sector. It will take some time to stabilise, it cannot happen in a month or a quarter. Over the medium to long term, this is a fantastic reform for the country to increase the tax revenues and people cannot just look it from one month to the other. All this data is again sometimes an optical illusion in terms of people comparing data when the data series has changed. Also, I personally feel over the next three to five years, Indian economy is on a very good track. The excitement is more on the currency and the equity market fronts.

    Fixed income markets are relatively in good hands. There is sufficient amount of liquidity in the system. The real rates in India continue to be good. Fiscal discipline is there and we believe government will adhere to that and I think India amongst the emerging markets on the fixed income side provides the highest carry and it is a good market to be in.

    The government has shown fiscal discipline. We are also talking at a time when there is talk on an upcoming fiscal stimulus which could cost Rs 40,000-60,000 crore. If you do see any breach on the fiscal deficit target at all, are you expecting ramifications on the currency markets or do you think that maybe Mint Street and Dalal Street will be enthused by the fact that the government is pump priming the economy and will therefore discount any breach?

    So far, we have to look at what government has actually done so far. I think the rewards of showing some fiscal indiscipline would have been much higher a year back. Today, I do not think they would be getting much rewards and Rs 40,000-50,000 crore in a large economy like India will not move anything much. On the other hand, the investors will reward this market more for maintaining fiscal discipline. That is what we believe the government will adhere to.

     


    I just wanted to understand about FII flows as far as debt markets are concerned. In the last three years, one would say earnings have not come, flows have been decent, rates have continuously gone down and still the flows have been decently strong in equities as well as debt markets. Do you think that fiscal discipline that you were talking about, the stability in the currency that has been the main reason why the flows continue to be strong? Any change on that front could lead to some sort of huge outflows?

    So again, let us dissect it in two parts; one is equity flows, one is fixed income flows. Equity flows have not been that great this year but fixed income flows have been fantastic. Last year, we saw money going out, actually people booked profits and took the money out but this year, they have bought the Indian market in large numbers, almost more than Rs 1,50,000 crore. India as a market vis-à-vis other markets provides a good carry and there are not many opportunities in the world where you can get a sovereign 10-year bond closer to 6.65-6.70.

    It is a market which has appeared stable so far so hence has been somewhat the darling of the foreign portfolio investors. As far as hot money is concerned, they will be there but who controls the Indian fixed income market is not the foreign investors but the domestic investors. If you look at the state owned banks, the pension funds and insurance companies they are the largest investors in the bond market.

    Any dislocation that happens because of any outflows can easily be absorbed by these large investors. And especially in an environment where credit growth has not happened people are sitting on liquidity I think we have very deep pocketed investors to take care of any outflows in this market from foreign investors.

    As far as credit growth is concerned, do you think that will be a major economic tracking tool for flows both into equities as wells as debt?

    Equity guys can answer it better but from my perspective, credit growth will eventually come by. It will take some time. It is going through that patch where some normalisation is happening. As far as fixed income market is concerned. if credit growth comes back, we will be able to participate in high yields.

    Yields in India last year came down sharply and so far we have seen much more stability on the fixed income side. We do not expect fixed income rates to run away on the other side.

    We are expecting 10-year to hover between 6.50-6.75, I think that is what market is also looking at. It is fantastic and with the sovereign risk, if you add the credit markets you have further spread that you can add into the investments that you have in India.




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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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