The Reserve Bank of India will be auctioning bonds worth Rs 20,000 crore on Thursday which is likely to be one of the biggest auctions and is expected to add tremendous pressure in the market.
Speaking to CNBC-TV18, Ananth Narayan, Co-Head of Wholesale Banking for South Asia at Standard Chartered Bank says markets have already priced in the auction and there seems to be enough demand between banks and financial institutions to handle the supply.
Also Read: Bond yields at six-week low: Here's why
Narayan does not expect bond supply to be a challenge in near-term as there is huge demand which will match the upcoming supply. Narayan expects bonds to trade within 8.80-9.10 percent range going ahead.
He, however, cautions market to expect heavy sell-off in all asset classes if election outcome turns out to be unfavourable.
Below is Ananth Narayan's interview with Ekta Batra and Anuj Singhal on CNBC-TV18.
Ekta: What is your view on the Rs 20, 000 crore auction? Do you think it will go through smoothly?
A: I think it will. The reality is that this has been a known factor. The market have been pricing this in for the last few days and more importantly there seems to be enough demand right now between banks and financial institutions to take on the supply which is relentless.
Credit off-take has remained low; the avenues for deployment of deposits for banks and institutions remains low and you also have a lot of redemptions which are going through at the moment including one, a couple of days back. So, there is a lot of replacement and genuine demand going through and in the short run, I do not expect supply to be an issue in terms of lack of demand. I think the demand will match the supply available.
Anuj: What is your call on the currency market? We have seen some stability come back around 60/USD mark. Do you think this is the zone now for the currency, half a rupee here or there?
A: The consolidation that we have seen in the last few days, it threatened at one point to break 59.70/USD and go below that but the consolidation is very healthy, otherwise dollar-rupee could have become a compressed spring waiting to spring after the election results come out. So, the stability that we have seen since September last year is healthy.
There are vulnerabilities in the system. Our external debt remains extremely high, a lot of dollarisation of debt has happened by corporate, our banking system and leverage corporate space remain little shaky. So, we do need inflows on a regular basis but we do need growth to come back to bolster inflows and therefore, keep balance of payments on even keel. But at the moment the base case seems to be one of continued consolidation, one of continued stability and that bodes well for the overall economy even bonds for that matter besides the short-term demand that we have from banks.
In long-term there is a bullish view coming around on bonds, if macro economic stability continues – it should augur well and bode well and give a lot more space for the RBI to rethink on rates and attract foreign institutional investors (FIIs) inflows into the bond space given the interest rate differentials.
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