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Debt outlook post july 15th 2013

Report on latest outlook on Debt Market

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Debt outlook post july 15th 2013

  1. 1. Debt Outlook July 15th, 2013July 15th, 2013
  2. 2. RBI announcements on 15th July Cap Borrowing under LAF to Rs. 750bn Hikes Bank Rate and Marginal Standing FacilityHikes Bank Rate and Marginal Standing Facility Rate by 200 bps from 8.25% to 10.25% Announced an OMO sale of securities of Rs. 12,000 Crores
  3. 3. Effect on the Market Interest Rates shot up across the curve 10 year Bond trading above 8% ( as high as 8.23) 1 Year CD levels approaching 10% Such steep increases in yields was not expected These levels has not been witnessed by markets over long term
  4. 4. Outlook and strategy Domestic Macro factors are supportive to softer rates Global markets volatility and sharp depreciation has led to RBI tighteningRBI tightening Stated objective of RBI is to restore stability in Forex Market Historically it takes around 3-6 months for Forex Market to stabilize
  5. 5. Outlook and strategy We believe there could be possibility that RBI may look at other liquidity measures if the liquidity tightness is not transmitting into the system in a desired way. It would be too early to conclude end of volatility in the bond market and therefore, it is preferred to be careful and vigilant until the market stabilizes Volatility will still be prevalent as more critical issues on magnitude and mode of financing CAD is yet to be properly resolved We expect RBI to Roll back these measures once the stated objective of stability in Forex Market is achieved We believe Debt Funds with Accrual strategy are better suited to benefit from present chaos. We continue to focus Templeton India Corporate Bond Fund and BSL Medium Term fund for 2-3 Years Horizon
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