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HDFC Bank raises Rs 739 crore via masala bond

New Delhi: HDFC Bank on Thursday said it has raised Rs 739 crore by issuing the rupee-denominated masala bonds in the overseas markets. HDFC Bank has issued and allotted rupee-denominated bonds overseas on September 30, 2021, the lender said in a regulatory filing.

The private sector lender will use the proceeds from the issue for banking activities.

The subordinated additional tier I bonds are compliant with Basel III norms.

The perpetual bonds, which are unrated and unsecured, carry a coupon rate of 7.55 per cent.

The notes (bonds) will be listed on the India International Exchange (IFSC) Ltd and NSE IFSC, it said.

Perpetual bonds carry no maturity date, so they may be treated as equity, not as debt.

The rupee-denominated bonds, popularly known as “masala” bonds are instruments that are issued outside India, not in the local currency but the Indian rupee.

In November 2016, the RBI had allowed banks to raise funds by floating the rupee-denominated bonds in overseas markets as part of an additional avenue to raise long term funds. Shares of HDFC Bank closed at Rs 1,595.50 apiece on BSE, up 0.14 per cent from the previous close.

Adani Ports & SEZ raises Rs 1,000 crore via NCDs

New Delhi:

Adani Ports

and Special Economic Zone (APSEZ) on Monday said the company has raised Rs 1,000 crore by allotment of secured, redeemable, and non-convertible debentures (NCD) on the private placement basis. APSEZ in a BSE filing said that NCDs will be listed on the Wholesale Debt Market segment of BSE Limited.

“With reference to above, we would like to inform that the company has raised Rs. 1,000 crores (Rupees One Thousand Crore only) today by allotment of 10,000 rated, listed, secured, redeemable, Non-Convertible Debentures (NCDs) of the face value of Rs. 10,00,000/- each on private placement basis,” it said.

Adani Ports and Special Economic Zone, the flagship transportation arm of the persified Adani Group, is India’s largest private ports and logistics company.

RBI says India’s inclusion in global bond index may happen in next few months

MUMBAI: Reserve Bank of India Governor Shaktikanta Das on Friday said it is in an advanced stage of discussion regarding the country’s inclusion in the global bond index, and the same may happen in the coming months.

“Tough to give a timeline, but global bond index inclusion should happen in the next few months,” Das told a post-policy press conference.

India has been pitching for the inclusion of the country’s government bonds into global bond indices, which are tracked by global passive fixed income funds. In the Union Budget, the government had allowed foreign portfolio investments in certain government securities.

In September, brokerage firm Morgan Stanley said India’s inclusion in the global bond indices will attract foreign flows worth $170 billion to $250 billion over the next decade.

“This would push foreign ownership of IGBs to 9% by 2031…In a bull case, foreigners could buy US$27 billion a year thanks to well-controlled inflation, a well-managed fiscal deficit and gradual INR appreciation,” Morgan Stanley Research said.

Morgan Stanley Research is of the view that the process for listing of Indian bonds in the Belgium-based clearing house Euroclear is expected to be completed by the end of 2021 and that consequently the GBI-EM and Global Aggregate Index would include Indian bonds in their index.

The government has for years been striving to have sovereign bonds listed on global indices, but so far the plan has suffered teething problems, the latest being the onset of the Covid-19 pandemic.

In the Union Budget for 2014-15, the then Finance Minister Arun Jaitley had mooted the international settlement of Indian debt.

Subsequently, the Finance Ministry in 2018 had even considered the issuance of an offshore sovereign bond for the first time ever. However, the plan was relegated to the backburner after several prominent economists, including former RBI Governor Raghuram Rajan, flagged risks to the idea.

Short-term rates surge as liquidity falls

India’s short-term financing rates have surged over the past two weeks as the central bank prepares the economy to operate with normal levels of liquidity – and the usual higher-pegged market gauge lately ignored.

Treasury yields shot up by 14-19 basis points Wednesday in the primary auction since the preceding two such bids conducted by the Reserve Bank of India (RBI). Market speculation that the repo rate, or the rate at which banks borrow short term from the RBI, will soon become the operational rate instead of the reverse repo also caused yields to harden.

The repo is at 4 per cent as against 3.35 per cent for reverse repo, which is the rate at which banks park their surplus with the central bank.


“Rising T-bills yields are a clear reflection of a gradual start to hardening in rates,” said Ajay Manglunia, managing director – debt capital market, JM Financial. “We shall soon have the repo as the operating rate instead of reverse repo. The central bank’s liquidity normalisation is underway aiding this move.”

The cut-off yield for the six-month gauge was at 3.83 per cent in Wednesday’s primary auction compared with 3.70 per cent on October 20 and 3.64 per cent on October 13, show data compiled by JM Financial Research.

Treasury Bills are short-term sovereign debt securities. They provide a benchmark view for other shorter duration debt instruments including commercial papers, sold by companies to raise working capital.

The three-month gauge cut-off was at 3.56 per cent versus 3.45 per cent a week ago and 3.39 per cent a fortnight earlier.

“Overall, rates are likely to be northward amid a raft of macroeconomic factors including rising global oil prices and local demand for money,” said Yatin Singh, Head – Investment Banking at Emkay Global. “State governments and corporates, too, will now borrow more with the economy reopening. Funding costs have begun to go up with expected near term liquidity normalisation.”

The banking system has a surplus of nearly Rs 6.94 lakh crore as on October 26, compared with Rs 7.71 lakh crore as on October 12, show RBI data.

Global crude oil prices jumped more than 13 percent in the past one month in the international market amid a supply crisis. Crude prices could soar to $110 per barrel by next year, a 30 per cent jump from the current levels, Goldman Sachs estimates said.

The benchmark yield, a gauge for long-term rates, has risen 17 basis points this month.

A near-consensus view emerging among market participants and policymakers is that “the liquidity conditions emanating from the exceptional measures instituted during the crisis would need to evolve in sync with the macroeconomic developments to preserve financial stability”, RBI governor Shaktikanta Das said in his monetary policy statement on October 8.

“This process has to be gradual, calibrated and non-disruptive while remaining supportive of the economic recovery,” he said.

( Originally published on Oct 27, 2021 )

Glide path to higher treasury yields gets fuel as inflation brews

The runway for higher Treasury yields has cleared as traders see it as a sure thing that the Federal Reserve will start to normalize monetary policy next month as the economy improves and inflationary threats build.

Ten-year yields broke through a pivotal 1.6% level on Friday, putting it within a rate zone perceived as triggering selling of Treasuries related to mortgage-debt hedging. The benchmark has risen for seven straight weeks, leaving holders of debt with this maturity or greater in the red by more than 8% this year, a Bloomberg index shows.

Even below-forecast job creation in September didn’t take the pressure off the Fed to act as it came with robust wage gains. That data, along with a backdrop of surging energy prices, have investors doubting that inflation will prove transitory as many Fed policy makers insist.

While there’s almost four weeks until the Fed’s next policy meeting, Wednesday’s release of minutes from its last gathering may give more clues on officials’ thinking. An update on consumer prices is on the radar with the measure having run the prior four readings at an annual pace of at least 5%. Bond-market measures of inflation-expectations rose this week to their highest since May, after trading in a tight range for months.

“These inflationary pressures, globally, are front and centre now,” said Gregory Faranello, head of US rates at AmeriVet Securities in New York. “And the Fed has been hammering home that there will be no rate increases until tapering is done, so they need to get on with the taper. If they don’t, then at some point the markets may challenge the Fed – pricing up yields.”

The 10-year Treasury yield, now at about 1.6% versus under 1% at the start of the year, will finish 2021 in the 1.75% to 2.25% range, Faranello predicted.

The Fed is currently buying $120 billion a month in debt purchases, made up of $80 billion in Treasuries and $40 billion worth of mortgage-backed securities.

NTPC gets shareholders’ nod to raise up to Rs 18,000 cr via bonds

New Delhi: State-owned


said it has got shareholders’ approval to raise up to Rs 18,000 crore through the issuance of bonds or debentures. All resolutions listed in its annual general meeting (AGM) held on September 28 were passed with requisite majority, it said in a BSE filing.

NTPC had proposed to raise up to Rs 18,000 crore through the issue of bonds/debentures on a private placement basis.

In addition to capital expenditure (capex) requirement, the company also needs to borrow for meeting its working capital needs and other general corporate purposes, which are partly proposed to be met through the issuance of non-convertible bonds, the company had said in the AGM notice.

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It had also sought shareholders’ approval to increase the borrowing powers of the company from Rs 2,00,000 crore to Rs 2,25,000 crore.

Keeping in view the future capex requirements and to take care of forays into new business verticals and any unanticipated investment requirements, a need is felt to enhance the existing borrowing limits, the company had said.

Besides, it sought shareholders’ approval to re-appoint Gurdeep Singh as chairman and managing director of the company till July 31, 2025.

Singh was appointed as CMD on January 28, 2016 for five years from the date of assumption of charge, or until further orders.

His appointment was approved by shareholders in the 40th AGM held on September 20, 2016.

The Ministry of Power had extended Singh’s tenure from February 4, 2021, till July 31, 2025 — the date of his superannuation.

The Board of Directors in its meeting held on November 2, 2020 had approved the tenure extension.

Will RBI really raise reverse repo rate as the market is expecting?

We expect RBI to retain its accommodative stance without any increase in the reverse repo rate, currently the effective policy rate. The amount of the GSAP for Q3 could be reduced with the provision that it could be revised up when required. Moreover, the RBI could continue to sterilise its GSAP purchases going forward to keep the impact of its yield management tools liquidity neutral.

GDP forecast to remain unchanged, Inflation forecast likely to be revised down: The RBI is likely to revise down its inflation forecast for Q2 FY22 (last RBI’s forecast: 5.9 per cent) and for Q3 FY22 (last RBI’s forecast: 5.3 per cent) projected in the last policy meeting in Aug-21 due to lower food prices. We expect inflation to average at 5.1 per cent in Q2 and 4.8 per cent in Q3 FY22. For FY22, we expect inflation to average at 5.35 per cent.

Our rationale:

  • Global risk particularly from the China “shock”, the US Fed taper and apprehensions about the US debt ceiling not getting raised have escalated.
  • These would have supply side effects for industrial intermediates and fuel as well as demand side manifestations as global growth is likely to slow down
  • US yields have risen sharply with a knock-on effect on domestic yields.
  • As the US taper gets under way, there could be an outflow of capital affecting domestic liquidity.
  • Domestic output gap remains high and capacity utilization in the majority of industries is below 75 per cent.
  • Household and SME balance sheets are impaired and are best repaired under low interest/high liquidity conditions

Thus, the balance of risks calls for holding action and continuation of the accommodative stance.

(Abheek Barua is Chief Economist at HDFC Bank. Views are his own.)

Short-term gilts suggest RBI policy normalisation still some time away

NEW DELHI: Perhaps the biggest takeaway for markets from the Reserve Bank of India’s monetary policy statement last week was that normalisation of the ultra-accommodative policies has started in the country.

The central bank, aware of the risks of adding fresh liquidity to the banking system amid upside risks to inflation, paused the government security acquisition program that it had adopted since April and announced a larger quantum of funds to be withdrawn from the system through its variable rate reverse repo operations.

However, one of the key market metrics which indicate a bearish view on interest rates has barely registered any change – short-term gilt yields.

Papers maturing in up to five year or so are typically the most sensitive to liquidity conditions and the interest rate scenario.

And if one goes by the price action in such securities, the market is pretty confident that any normalisation is some time away.

Yields on the most liquid 3-year and 5-year securities have actually declined 3 basis point and 7 basis points respectively since RBI’s monetary policy statement in August. Hardly a sign of a market which is expecting imminent normalization of monetary policy.

While yields on Treasury Bills had shot up in the runup to the policy statement, that was more to do with the commentary surrounding a possible central bank response to a sudden surge in crude oil prices.

In the days preceding the policy statement, many segments of the market, including major foreign lender Citibank, had predicted a rise in the reverse repo rate, from its current all-time low of 3.35 per cent.

RBI’s decision to set the cutoff rate at a recent reverse repo auction at 3.99 per cent — just below the benchmark policy repo rate of 4.00 per cent — also stoked speculation that the central bank was looking to realign money market rates to the repo rate rather that the reverse repo rate of 3.35 per cent.

The reverse repo rate effectively represents the overnight cost of funds for banks due to the huge surplus of liquidity – currently estimated around Rs 7 lakh crores — in the banking system.

What actually happened on the ground was different. RBI’s Monetary Policy Committee held all key rates steady and while it did start the tricky process of modulating excess liquidity from the banking system, the consensus is that the central bank has pulled off the task quite adroitly.

“The main reason why short-term bonds have not reacted to the policy is because the RBI has done a very good job with communication,” PNB Gilts Managing Director and Chief Executive Officer Vikas Goel said.

“Look at MIBOR (Mumbai Interbank Offer Rate). The fixings are not anywhere close to the repo rate and it will take some time to head even to the 3.70 per cent or 3.80 per cent levels. Basically the market is now of the view that whatever happens will happen gradually. There will not be a crash landing. I expect that in either December or February there could be a 15-basis-point rise in the reverse repo rate but the actual cost of funds is unlikely to shoot up anytime soon,” he said.

Yields on longer-tenure bonds may have climbed on Friday but that phenomenon was inevitable, given demand-supply dynamics. Absorbing Rs 12.05 lakh crore, a large portion of which is longer-term papers, is no easy task, especially when RBI steps back from upfront committed bond purchases.

Typically, markets take a day or two to digest monetary policy statements, but the proof of the pudding is always in the price action. Going by that metric, the lack of response in short-term bond yields is testament to the market’s confidence that policy accommodation is not going to leave abruptly, despite high oil prices and the US Federal Reserve’s guidance of tighter monetary policy.

RBI would undoubtedly be relieved after the reaction in short-term bonds as most corporate borrowing is benchmarked against government securities maturing in 3 to 8 years.

Growth indicators may be showing a revival in the economy but it is still far from being capable of absorbing the shock of a sudden rise in borrowing costs.

“Now that the policy is done, I think short-term bonds will remain around these levels,” a senior trader at a large foreign bank said on condition of anonymity.

“5.63 per cent, 2026 had sold off earlier and then traders had a renewed interest in the bond because there was no extra GST borrowing. The trade is again getting crowded, but I think looking for carry is a sensible option in the current scenario where liquidity is still plentiful and rate hikes are some time away,” he said.

Benchmark bond yield up with oil, US yields

Mumbai: North Block’s circumspect borrowing target for the second half of this fiscal failed to lift Indian bonds on Tuesday amid a palpable global threat of higher fuel prices, and signals from the central bank on baby steps to normalisation of liquidity potentially lifting overall rates marginally.

The central bank raised the cut-off for bids in the 7-day Variable Reverse Repo, seen as a tool to lift rates from abysmally low levels to normal, at 3.99%, closer to policy repo rate of 4%. Reverse repo rate is the rate of interest the RBI pays banks for keeping excess funds with it, and repo rate is the rate banks pay to borrow from the RBI. The cut-off was 3.6% on September 24 in the 14-day VRR.

Bond yields either rose marginally or fell only a tad instead of an anticipated sharp drop after the Reserve Bank of India (RBI) late Monday published the borrowing calendar that showed North Block may borrow less than what the markets pencilled in.

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The benchmark bond yield was up two basis points to 6.23% Tuesday. The gauge was widely expected to fall by five basis points at least after the publication of the borrowing schedule. When bond yields rise prices fall.

“Local debt markets are tracking the recent rise in crude


prices and US treasury yields,” said Nagaraj Kulkarni, executive director and senior Asia rates strategist at Standard Chartered Bank, Singapore. “These are new headwinds to the local bond market, which otherwise has reacted positively. The RBI will remain vigilant and would not desire a rise in bond yields.”

Global crude oil prices crossed $80 a barrel for the first time in three years amid signs of widespread fuel shortfalls. Investment bank Goldman Sachs expects Brent to hit $90 a barrel by the year end.

Five-year bonds bearing a coupon of 5.63% yielded a tad lower at 5.67% Tuesday. These are the second most traded liquid government debt securities.

Yields were expected to drop 10 basis points in this category.

Other sets of sovereign papers maturing in 2035 yielded a tad higher. Those securities, ranked in the top five liquid list, were also expected to fall.

New Delhi will borrow Rs 5.03 lakh crore between October and March, in line with budget estimates.

ETFs displace liquid plans, top AUM charts

The exchange traded funds (ETF) have overtaken the liquid funds‘ segment to become the largest mutual fund category in terms of assets under management (AUM) thanks to growing retail interest and sustained institutional demand.

Their AUM was Rs 3.6 lakh crore at the end of September 2021, about Rs 39,000 crore more than that of the liquid funds according to the data from the Association of Mutual Funds in India (AMFI). On average, liquid funds had nearly Rs 80,000 crore more AUM than ETFs over the past year.

The number of mutual fund schemes linked to the ETF rose to 103 in September, compared with 71 two years ago.

The ETF AUM has risen by 72% over the past 12 months, nearly double the AUM growth of the mutual fund industry. Consequently, the former category’s share in the total industry AUM rose by 250 basis points to 10% during the period.


The ETF folio addition in September was six lakh, a record level and double the one-year average of 3.7 lakh folios. The cumulative ETF folios more than doubled in a year to 69.1 lakh. They formed 60% of the total folios of large cap funds compared with 30% a year ago.

The average investment per ETF folio dropped to Rs 5.3 lakh in September compared with Rs 12.5 lakh two years ago reflecting the rising participation of retail investors for a product that initially took off as an institutional product.

Particularly, the Employees’ Provident Fund Organisation (EPFO) has increased equity allocation through the ETF route.

( Originally published on Oct 19, 2021 )