India's 10-year benchmark government security yield ended May at 7.00%, two basis points below its end-April level of 7.02%, according to a Crisil Intelligence report published on 16 June. The benchmark security is the 6.48% GS 2035.
Crisil said the Reserve Bank of India's decision to hold the repo rate at 5.25% with a neutral stance, together with an expansion of the fully accessible route (FAR) universe and the exemption of foreign investors from capital gains, had supported the market.
POLICY SUPPORT FOR FOREIGN INVESTORS
On 5 June the government exempted foreign investors from tax on interest income and capital gains from government securities through an ordinance, and the RBI announced a package of measures to attract foreign inflows. The RBI expanded the universe of securities under the fully accessible route to include all new issuances of 15-, 30- and 40-year government securities. The package also raised limits for investment by non-resident Indians and overseas citizens of India in listed equity instruments and proposed restoring the period for realisation of export proceeds to nine months.
OUTLOOK
Crisil expects the 10-year benchmark yield to trade in a range of 6.93% to 7.03% over the next three months. It identified policy moves by the US Federal Open Market Committee and expected elevated inflation as factors for yields, and said the awaited inclusion of Indian government securities in the Bloomberg Global Aggregate Index could exert downward pressure on yields.
For state development loans, Crisil projected yields of 7.62% to 7.72% in late June and 7.63% to 7.73% in late August. It forecast corporate bond yields of 7.72% to 7.82% in June and 7.73% to 7.83% in August.