The Reserve Bank of India (RBI)’s new cash tool shook inflation against economic growth. It could inflict front-loaded inflation risk. Annual consumer prices for instance escalated to a 17-month higher of 6.95%. The major cause of this surge is due to the higher crude prices. India imports over two-thirds of its oil. Inflation has exceeded market expectation, analysts warned that early rate increase should be there initially.
They see the surge of risk that could even be more than front-loaded. Nomura Global Market Research argued that in 2022 a 50bp climb in of the meetings. Therefore, domestic market bond issuers are postponing their plans in response to market volatility. Murthy Nagarajan, a head of fixed income at Tata Mutual Fund argued that mismatches between pricing expectations of the issuers and investors exist.
He added that the demand is tepid, in order to wake the demand, issuers will have to set higher levels. AAA rated public sector companies for instance are able to issue long-tenor bonds under government yields. This is because of the support from pension and provident funds demands.
However, investment activity from both pension and provident funds is sometimes too slow to fit in the new financial year. Thus, AAA rated issuers adapt their price expectations planning. Venkatakrishnan Srinivasan, bond market veteran and founder of Rockfort Fincap, said that he could see a 40-50bp yield reset for issuers compared to March.
Others take various approaches to fundraising. Bajaj Finance, SBI Cards & Payment Services, and Indian Railway Finance Corp scrapped plans to yield 10-year bonds. It was even before the RBI policy announcement. Srinivasan added that those wanting to test bond market are only desperate issuers.