India’s Long Bonds Are A Buy On Wider Spreads, Bajaj Finserv's Lakshmi Iyer Says

India’s long-tenor sovereign bonds present a buying opportunity, thanks to a wide yield spread over shorter notes, according to a top official at Bajaj Finserv Ltd.

“There’s a reasonable amount of demand, especially for bonds at the longer end,” Lakshmi Iyer, group president for investments at the financial services conglomerate said in an interview with Bloomberg TV. With long yields rising above 7%, the segment is drawing demand from pension funds and insurers, she said.

The yield spread between India’s 30- and five-year government debt has widened to over 100 basis points — nearing a three-year high last seen in June — after the Reserve Bank of India kept interest rates steady last week, citing inflation risks. The move has led some analysts to dial back expectations of near-term rate cuts.

“The gaps are pretty huge,” Iyer said, referring to the spread. “That poses a buying opportunity. I don’t think demand-supply mismatch or lack of demand is clearly a worry for the bond market.” The RBI may deliver one more rate cut before the current fiscal year ends in March 2026, she said.

The benchmark 10-year yield rose as much as three basis points to 6.44% on Monday, the highest since early May. Yields have risen for five straight weeks, driven by the central bank’s liquidity-draining measures, indications that the easing cycle is ending, and continued weakness in the rupee.

The current level offers “a good entry point”, Iyer said.

“We are not really looking at a reversal of rate action at the current juncture. Liquidity continues to be fairly robust, even as we speak, north of 3.5 trillion rupees,” she said.

Excerpts from the interview:

• The rupee is expected to remain relatively stable around the 88/dollar mark, with the dollar index holding below 100 for a fairly long time

• Modest rupee depreciation in the current environment appears to be factored in by the market

• Bulk of negative news seems to be priced in at current levels, and the strategy is to accumulate quality stocks during market corrections

• The investment approach remains bottom-up, with a focus on sectors like BFSI and consumer-oriented themes, where additional spending is likely