India's state debt demand surprises Barclays

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Indias state debt demand surprises Barclays

Mumbai - India allowed foreigners to buy bonds issued by state governments as part of a broader initiative to make the nation's debt market more accessible.

By Bloomberg

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Published: Fri 16 Oct 2015, 5:12 PM

It took just three days for global funds to use up an investment limit for India's state-government bonds, a faster takeup than Barclays anticipated as the market opened to foreigners for the first time on Monday.
The Rs35 billion ($540 million) cap that India's central bank set for overseas investment in state securities this year was fully utilised by Wednesday, according to data from the National Security Depository. Strong demand from foreigners has helped narrow the notes' yield spread over local sovereign bonds by about five basis points this week, according to Trust Investment Advisors Pvt.
"The demand for state bonds has turned out to be exceptionally strong and is indeed a surprise to us," said Rohit Arora, a Singapore-based interest-rate strategist at Barclays. "Demand for rupee assets is the strongest it has been in the past few years, a trend we expect to continue amid India's improved fundamentals."
India allowed foreigners to buy bonds issued by state governments as part of a broader initiative to make the nation's debt market more accessible. The Reserve Bank of India on September 29 unveiled a plan to raise the limit on foreign institutional holdings of local sovereign notes, answering calls from investors including Pacific Investment Management Co. that were pressing for higher participation in Asia's best-performing bond market.
The optimism around Indian assets stems from the nation's relatively low exposure to China's economic slowdown and a drop in oil costs that has improved the finances of Asia's third- largest economy. The Asian Development Bank predicts India will grow 7.4 per cent in 2015, compared with 6.8 per cent for China. The rupee has climbed 1.2 per cent this month, after rallying 1.4 per cent in September in the best performance among 24 emerging- market exchange rates.


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