(Bloomberg) -- Indian dollar bonds are starting to sputter amid fallout from a recent record surge in local Covid-19 cases, dragging down what had been one of the strongest rallies in Asia this year.
- The notes have lost 0.3% this month, worse than a 0.2% decline for a broader Asian dollar bond gauge, according to Bloomberg Barclays indexes. That's paring an earlier outperformance sparked by a strong economic rebound that pushed gains on the Indian debt securities to as high as about 1.3% in 2021 at one point
- Also read: Rupee Tumbles With Stocks as Virus Cases in India Hit New Record
- Goldman Sachs shifted to neutral on Indian investment-grade and high-yield dollar credits this month, citing its expectation of limited room for further outperformance amid the surging Covid-19 cases, analysts Kenneth Ho and Chakki Ting wrote in a note
- The global bank lowered its forecast for India's real GDP growth for the year that began on April 1 to 11.7% from 12.3% earlier
- Performance of corporate dollar bonds from India will be driven by perceptions of the country's ability to get control of the outbreak, said Todd Schubert, head of fixed-income research at Bank of Singapore. Investment opportunities may arise in sectors less affected by the infection surge, such as renewable power credits, if there is a broader selloff, he said
- Some bonds in that sector have dropped recently too. The yield on India Green Energy's dollar note due in 2024 has climbed to 4.3% from 3.4% in late February, while Continuum Energy's 2027 bond yield rose to 4.3% from 3.9% in the same period
- Indian banks' and shadow lenders' asset quality might come under pressure again as a second wave of infections threatens a fragile economic recovery, according to Fitch Ratings. Financiers are major bond issuers from India.
- The rapid increase in Covid cases is also credit negative for Indian airports due to the adverse impact on passenger and aircraft traffic, according to Moody's Investors Service
- Companies are off to their slowest start in a financial year for rupee bond issuance in 13 years with the amount plunging to 24 billion rupees ($319 million) since April 1, Bloomberg-compiled data show
- The slump comes after new rules from markets regulator Securities & Exchange Board of India came into effect April 1. The regulations require borrowers to obtain due diligence certificates from debenture trustees before listing their securities
- Yields on top-rated rupee corporate notes maturing in 10 years are falling for a fifth straight week, the longest such streak in over a year, after the Reserve Bank of India outlined more measures last week to support the economy
- By contrast, yields on shorter-term corporate debt have increased on expectations of higher inflation and growth
- The central bank took a step last week toward formalizing quantitative easing, pledging to buy up to 1 trillion rupees of government bonds this quarter, to keep benchmark borrowing costs low
- Indian government and corporate bond markets were shut April 13 and April 14 for local holidays
Primary Market - Worst Start Since 2008
Secondary Market - Long-Tenor Yields Drop
Best and Worst Performing Corporate Dollar Bonds Year-to-Date
| Best Performers | Return (%) |
|---|---|
| Vedanta Resources due April 2026 | +16.2% |
| Tata Motors due May 2025 | +2.9% |
| ABJA Investment due July 2024 | +0.9% |
| Worst Performers | Return (%) |
|---|---|
| Indian Railway Finance due Feb. 2030 | -8.6% |
| Adani Electricity Mumbai due Feb. 2030 | -6.5% |
| Power Finance due April 2030 | -6.6% |
©2021 Bloomberg L.P.
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