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Demonetization On
Indian Debt Market
Presented By:
Bhanuj Ahuja (05)
Parag Dhamija (11)
Taruna Juneja (17)
As demonetisation engulfs the economy and tales of woe hit people from
near and far, Indian financial markets bore the brunt of both the results
of the U.S. Presidential election as well as the crackdown on at least 80
per cent of currency notes in circulation.
Indian Debt Market
Debt market refers to the financial market where investors buy and sell
debt securities, mostly in the form of bonds.
Like all other countries, debt market in India is also considered a useful
substitute to banking channels for finance
Classification of Indian Debt Market
Indian debt
Government Securities Market (G-Sec Market): It consists of central
and state government securities. It means that, loans are being taken by
the central and state government. It is also the most dominant category
in the Indian debt market.
RBI had directed banks to keep 100% CRR of the deposits mobilised
during the period from September 16, 2016 to November 11, 2016. This
is expected to absorb liquidity to the extent of Rs.3.25 lakh crore from
the banking system.
Maintaining excess CRR is akin to penalizing the banking system and not
allowing transmission of lower rates into the economy.
Rupee corporate bonds had their best month in more than three years
in November.
The drop in bond yields help companies refinance debt, fund capex and
make acquisitions at a cheaper rate.
Companies can now raise funds in the local bond market at cheaper
costs, after the demonetisation sparked a flood of money into banks
that have ploughed it into debt securities
The spread between G-Sec and AAA PSU Bonds widened from 75 basis
points to 80 basis points.
The overall net outflow has made 2016 the worst year for Indian
capital markets in terms of overseas investment since 2008, when
FPIs had pulled out a massive Rs 41,215 crore in the wake of the
global financial crisis.
FII Pullout
Yield Hunt
Yields on emerging-market dollar bonds have climbed for four
straight weeks since Donald Trumps election victory & increase in
interest rates make emerging markets more lucrative.
Emerging-market bonds, yielding more than 5 per cent on average,
are starting to look attractive again
Factors Explained Contd..
Improving Fundamentals
Emerging-market fundamentals are in much better shape now than they
were three years ago. Economic growth is picking up this year for the
first time since 2010, current-account shortfalls in countries like India
and South Africa have receded and foreign reserves have increased.
In general emerging markets have stronger current-account balances
and a lower reliance on external debt, rendering them less risky.
Under-Invested Funds
Some of the worlds biggest money managers still have a lot of room to
increase their exposure to emerging-market bonds.
What Should Bond Investor Do???
For the debt component of the portfolio, we advise investors to increase their
allocation to long-term funds from 33% to 50%," says Vishal Dhawan, chief financial
planner, Plan Ahead Wealth Advisors.
Aggressive fixed income investors could invest in dynamic bond funds, income funds
and gilt funds, which will benefit from falling rates (or yields). Funds that invest in
long-term government securities look to benefit from the rise in bond prices.