Indian Bonds Advance as Monsoon Pickup Adds to Budget Optimism
Comment of the Day

July 02 2014

Commentary by David Fuller

Indian Bonds Advance as Monsoon Pickup Adds to Budget Optimism

Here is a sample from this informative Bloomberg report:

Indian bonds due 2023 rose, pushing the yield to the lowest in two weeks, on indications the monsoon is strengthening and optimism the government will unveil steps in next week’s budget to curb the fiscal deficit.

Seasonal showers covered northern Indian states including Uttarakhand and Himachal Pradesh, the weather bureau said yesterday, adding that conditions are favorable for an advance into other areas. State-run refiners raised fuel prices this week following an increase in rail fares last month, spurring expectations the government will seek to improve its finances by boosting revenue and reducing energy subsidies.

“Any sign of a revival in rains will buoy the bond market as it would calm inflation expectations,” Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai, said by phone. “The government has been making all the right noises, leading to hopes that the budget will focus on fiscal consolidation.”

India’s new administration led by Prime Minister Narendra Modi will present its firstfederal budget on July 10, the finance ministry said in a statement today. India can’t afford populist policies and needs fiscal discipline for sustainable economic growth, Finance Minister Arun Jaitley said yesterday.

David Fuller's view

India (weekly & daily) remains one of the world’s best performing stock markets this year, moving steadily higher ever since Narendra Modi threw his hat in the political ring and won a landslide majority victory.  Given Modi’s success in running the state of Gujarat, global investors saw his victory as a vote for modernity.  


Consequently, there is now a wall of international money earmarked for investment in India, provided the new regime is seen to be fulfilling its potential.  The Mumbai Sensex Index shown above would have to close beneath 25,000 to indicate a further consolidation before higher levels are seen. 

India is beginning to benefit from the contrast with China which had been mostly viewed as the better investment prospect in the post-Mao era.  This is understandable given China’s vastly superior infrastructure, more inclusive educational system, and more broadly developed economy.  However, under Modi’s leadership over the next five years, India is now viewed as a prime economic recovery and GDP growth candidate among emerging markets. 

There is also a subtle, contrasting distinction.  With China, one sees the country’s development but problems are hidden.  With democratic India, the problems are all too obvious, often overshadowing corporate achievements.  Better governance will improve both economies but this will be immediately visible in India. 

I think India is in a major bull market.  China remains a recovery candidate with the Hong Kong Hang Seng Index continuing to lead Shanghai A-Shares.  China is cheaper than India but investors remain wary.  

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