NRIS NRIs will gain for investing in INR bonds or bond Transcript of Podcast NRIs who were worried about investing in India should cast aside their worries and take advantage of the interest rate differentials between Indian Rupee (INR) and USD. The levels of the INR coupled with high rates in Indian fixed income securities would provide a strong risk return profile for NRI investors. NRIs first risk is currency risk when they invest in INR bonds. The currency risk is mitigated with the INR rallying by over 2% against the USD over the last couple of weeks. The INR is trading at levels of Rs 61 against the USD, up from lows of Rs 68.80 seen in August 2013 and up from levels of around Rs 62.50 seen in January 2014. The INR rally has both domestic and global factors attached to it. On the domestic front, the sharp fall in Current Account Deficit (CAD) that is expected at below USD 40 billion for fiscal 2013-14 against levels of USD 87 billion seen in fiscal 2012-13, a fall of 54% is one major factor for the INR rally. Capital flows have been positive with RBI swap window for FCNR B deposits attracting USD 34 billion while FIIs equity flows have been over USD 10 billion fiscal year 2013-14 to date. FIIs have bought USD 5.56 billion worth of Rupee bonds calendar year 2014 to date (as of 7th March 2014). In the last one week alone FIIs have bought USD 1.67 billion of Rupee bonds. FIIs had sold USD 10.23 billion of Rupee bonds in the April-December 2013 period. The trade deficit numbers for February 2014 showed that trade deficit was down 42% for the month while for the April-February 2014 period the deficit was down over 28%. Decline in gold and silver imports that dipped 42% in the April-February 2014 period is one of the primary reasons for lower trade deficit. To some extent, hopes of a Modi led government taking India out of a rut is driving the INR higher. On the global front, the INR has benefitted from the country being in a relatively better off position with respect to other emerging market currencies. Currencies of countries such as Russia have fallen over 10% on the back of geo political unrest and on the back of weakening economy due to lower demand for its staple exports of oil and gas. China has begun to devalue the Yuan after its exports tumbled 18.1% in February 2014. The INR is seeing shift in flows from relatively unattractive currencies. The second risk NRI investors face is interest rate risk. The high levels of yields on treasury bills, government bonds and corporate bonds mitigate interest rate risk. 91 days and 364 days treasury bills yields are at levels of 9.15% and 9% respectively, 5 and 10 years government bond yields are at levels of 8.72% and 8.85% respectively while 1,3,5 and 10 years corporate bond yields are at over 9.5% levels. Yields are factoring in tight liquidity conditions in March, which will ease in April and with INR stable and consumer price inflation printing at multi year lows of 8.1% for February 2014, yields could look to trend down later during the year. On a comparative basis, yields on US treasuries are in the range of 0.5% on 91 days treasury bills to 2.75% on ten year treasuries. Difference between INR bond yields and USD bond yields are around 6% to 9%. NRIs earing nothing in USD denominated debt should shift to INR debt to earn high income.
Posted on: Sun, 16 Mar 2014 08:41:00 +0000
Trending Topics
Recently Viewed Topics
© 2015