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Debt Outlook – Long End<br />
• A depreciating INR, rising crude oil prices and global uncertainties may force the RBI to be hawkish and go for<br />
another hike to defend the currency.<br />
• We expect headline CPI to start rising towards 4% in the coming month and then subsequently to 5%. As the<br />
monsoon was normal, we expect food supply to provide some cushion from oil price inflation<br />
• RBI is back with OMO and has done Rs 20,000 cr OMO in Sept and has announced Rs 36,000 cr additional<br />
support in the month of <strong>Oct</strong>. We maintain that the RBI needs to do a total of Rs 200,000 cr OMO but timing<br />
and choice of stock is critical.<br />
• The Government has announced a sharp decrease in H2 borrowing program. On the other hand, RBI<br />
announced OMO calendar for the month of <strong>Oct</strong>ober worth Rs 36,000 cr which has helped the yields rally to<br />
7.95%. We believe it will be difficult for the bond to breech 7.90% and sustain in an environment where INR is<br />
deprecating and crude is rising. The upside risk in yields is still open and clear.<br />
• Currently our portfolios contain low average maturities. This enables us to allocate in higher duration easily<br />
whenever the market may provide buying opportunities.<br />
• Over the next 6 months, markets may discount most of the negative surprises. This may eventually provide<br />
prospective buying opportunities at attractive levels.<br />
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