Fidelity raises India bond exposure, finds 5-10 year valuation 'compelling'
By Dharamraj Dhutia
MUMBAI, July 18 (Reuters) -Fidelity International, ranked among the top 10 global asset managers, is increasing exposure to Indian government bonds, with particular interest in the five-year to 10-year band, the fund's Asia fixed income head said.
The mid-to-long end of the bond yield curve looks attractive, supported by expectations of stable or potentially declining interest rates, well-managed inflation and a favourable fiscal outlook, said Lei Zhu, head of Asia fixed income at the fund house said.
The fund manager held an overweight position on government papers and found "the valuation of the five-10-year bonds compelling", driven by positive real yields and wider spread compared with rates in developed markets on an unhedged basis.
India's five-year 7.10% 2029 bond yield IN071029G=CC was at 6.92%, while the benchmark 7.10% 2034 bond yield IN071034G=CC was at 6.96% on Thursday.
Indications of a dovish monetary policy stance, a slowdown in inflationary pressure and achieving a 4% inflation target will lead to anticipation of capital gains, and these triggers would further encourage the fund house to buy more bonds.
Foreign investors have bought bonds of just about $1 billion on a net basis since getting included in JPMorgan's debt index on June 28 as many investors may have already positioned themselves ahead of the inclusion, but Zhu said she expected flows to gradually pick up on further rise in weightage.
Relatively stable and stronger currency, positive real yields, relatively higher interest rates, increased foreign investor participation and improved creditworthiness of the government also add appeal for the mid-to-long end bonds, the fund manager said.
She said fiscal consolidation could remain on track in next week's budget, with room for a lower fiscal deficit of 5% of the GDP from the 5.1% announced in the interim budget even after considering tax cuts and higher expenditure.
Any waiver or reduction in withholding tax would "significantly increase the (investor's) after-tax carry and returns" and lead to more demand, she added.
Reporting by Dharamraj Dhutia; Editing by Sohini Goswami
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