Global fund managers are applauding a move by India to deregulate the prices of bonds sold by the country’s states, which could spur overseas interest in the $350 billion market even if there are short-term losses.
The liberalisation will allow for a greater differentiation among the states, which have widely varying levels of growth, debt and wealth, overseas investors including Aberdeen Asset Management Asia say.
Securities sold by the nation’s 29 states will be valued at market prices, the Reserve Bank of India said at its policy meeting last week, discarding a long-standing rule that mandated adding a 25-basis point mark up over a sovereign bond with the same tenor.
While foreigners bought $23 billion of federal bonds in 2017, the highest in three years, they have been wary of provincial notes because of inadequate data on the health of their public finances. Global funds have used just 12 per cent of the 348 billion-rupee limit allotted to the securities, according to data compiled by the National Securities Depository.
“The move is positive in that the differentiation could lead to spreads that better reflect the underlying fundamentals,” Stuart Ritson, Singapore-based head of Asian rates and foreign exchange at Aviva Investors, said in an interview. “And, over time, this has the potential to lead to greater fiscal discipline.”
To nudge lenders to get their debt rated, the RBI set a lower margin requirement for rated state notes used as collateral for borrowing. Indian states have been large borrowers to fund farm loan waivers and pay for their staff, and the interest burden is set to push them to pile on more debt to plug budget deficits, according to HSBC Bank.
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They are due to sell up to 1.3 trillion rupees of securities in the three months ending June, a 40 per cent jump over the year-ago period. Several states were unable to sell debt at recent auctions as investors demanded higher yields.
The new valuation method, though, could be another pressure point for borrowers at a time when the benchmark yield is near a 3 1/2-year high. The reason: it dulls the appeal of state debt to investors seeking immediate trading profits and takes away from state-run lenders -- the top holders of federal debt -- an avenue to mask losses following a surge in yields.
“It has implications on demand for state bonds as it was a quick way to show treasury profits,” said R Sivakumar, head of fixed income at Axis Asset Management. “If the market was to fairly value such debt, we could see a reduction in demand.”
Aviva and Aberdeen, both of whom have an exposure to local state debt, said they would adopt a wait-and-watch approach.
“Only when proper credit differentiation happens will it be more attractive for foreigners,” said Lin Jing Leong, an investment manager at Aberdeen Standard Investments in Singapore. Valuations are attractive but Aviva will look for more macro stability and the onshore bond market before adding to positions, Mr Ritson said.
COMPANY PROFILE
● Company: Bidzi
● Started: 2024
● Founders: Akshay Dosaj and Asif Rashid
● Based: Dubai, UAE
● Industry: M&A
● Funding size: Bootstrapped
● No of employees: Nine
COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
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Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson
Director: Todd Phillips
Rating: 2/5
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Starring: Raed Zeno, Hadi Awada, Dr Mohammad Abdalla
Director: Raed Zeno
Rating: 4/5
Call of Duty: Black Ops 6
Developer: Treyarch, Raven Software
Publisher: Activision
Console: PlayStation 4 & 5, Windows, Xbox One & Series X/S
Rating: 3.5/5
Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
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Starring: Josh Hartnett, Saleka Shyamalan, Ariel Donaghue
Director: M Night Shyamalan
Rating: 3/5
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Engine: 3.0-litre six-cylinder turbo
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UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
THE SIXTH SENSE
Starring: Bruce Willis, Toni Collette, Hayley Joel Osment
Director: M. Night Shyamalan
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Earth under attack: Cosmic impacts throughout history
- 4.5 billion years ago: Mars-sized object smashes into the newly-formed Earth, creating debris that coalesces to form the Moon
- 66 million years ago: 10km-wide asteroid crashes into the Gulf of Mexico, wiping out over 70 per cent of living species – including the dinosaurs.
- 50,000 years ago: 50m-wide iron meteor crashes in Arizona with the violence of 10 megatonne hydrogen bomb, creating the famous 1.2km-wide Barringer Crater
- 1490: Meteor storm over Shansi Province, north-east China when large stones “fell like rain”, reportedly leading to thousands of deaths.
- 1908: 100-metre meteor from the Taurid Complex explodes near the Tunguska river in Siberia with the force of 1,000 Hiroshima-type bombs, devastating 2,000 square kilometres of forest.
- 1998: Comet Shoemaker-Levy 9 breaks apart and crashes into Jupiter in series of impacts that would have annihilated life on Earth.
-2013: 10,000-tonne meteor burns up over the southern Urals region of Russia, releasing a pressure blast and flash that left over 1600 people injured.
On racial profiling at airports
ADCC AFC Women’s Champions League Group A fixtures
October 3: v Wuhan Jiangda Women’s FC
October 6: v Hyundai Steel Red Angels Women’s FC
October 9: v Sabah FA