Indian Credit Has Lost a Key Bit of Support From Foreign Funds

(Bloomberg) --

India's troubled corporate bond market has lost a key bit of support from foreign money managers, and even a rebound in the battered rupee is unlikely to bring it back.

Offshore investors have previously helped Indian firms refinance maturing notes by buying their new debt in the primary market. But such fund managers have slashed holdings of rupee company notes to a three-year low in March as the currency marked record lows, amid global market turmoil fueled by the coronavirus pandemic.

The situation looks unlikely to get much better despite a drop in the dollar against currencies including the rupee Tuesday after the Federal Reserve unveiled an aggressive rescue package. The pandemic has forced India to order the world's biggest lockdown. That's taking a toll across markets, as trading collapsed in India's $790 billion sovereign bond market for over half an hour Tuesday.

The turmoil comes at a bad time for Indian companies facing a record 1.73 trillion rupees ($22.7 billion) in bonds due next quarter.

Offshore investors are “likely to remain risk averse to Indian assets including corporate bonds until the dust settles,” said Hemant Mishr, Singapore-based chief investment officer of SCUBE Fixed Income Fund, a $100 million India-focused bond fund. “For the flows to return back into India, the nation's policy makers should be seen as leading and managing the crisis rather than lagging.”

See also: Cracks Emerge in India's Bond Market After Worst Week Since 2013

Overseas investors haven't been big drivers in trading of rupee bonds, but their habit of buying in primary markets would be missed as refinancing costs surge.

Yields on top-rated rupee corporate bonds due in three years have jumped the most since 2013 this month even as the Reserve Bank of India said it would intervene in the local debt market to keep the volatility in check.

While the rupee strengthened a bit against the dollar on Tuesday, it's weakened over 6% so far this year. Some investors are skeptical about whether the rupee will continue to rebound.

“The trend for the dollar is still higher on the back of its safe haven status,” said Mishr at SCUBE.

©2020 Bloomberg L.P.

Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.