Debt Market Update

Reason for recent rise in yields in last 7-10 days

  1. Foreign Portfolio Investors (FPIs) have redeemed their money and flight to safety assets from emerging markets like India. All are chasing dollar now.
  2. Seasonal stress of March
  3. Even lot of entities in lockdown and shoring up on cash.

Measures taken by government and future

  1. Variable rate repo auction for INR.1,00,000 Crore in two traches as under: March 23,2020: INR.50,000 Crore & March 24,2020: INR.50,000 Crore.
  2. The Reserve Bank has decided to advance the second tranche of purchase of Government securities under Open Market Operations (OMOs) for ₹ 15,000 crores to March 26, 2020.
  3. Total Open market operation plan for this month is INR.30,000 Crore.
  4. The Reserve Bank of India (RBI) announced that it will undertake a six-month US Dollar sell/buy swaps of $2 billion this month.

Investor Takeaways

  1. Avoid AA, A and unrated papers even though they are offering high YTM as this present slowdown may increase the balance sheet stress.
  2. Invest in AAA rated and sovereign papers with duration of 3-5 years.
  3. 3-5 years AAA corporate instrument are trading at 250bps to repo and money market yields are trading at 150 bps to repo and hence we see opportunity here.

Demystifying RBI’s dollar rupee swap sell/buy auction

News: RBI on Thursday,12th March 2020, moved to address the dollar shortage in the market by offering a $2-billion swap for six months.

What is dollar rupee swap auction?

It is the tool used by the RBI to infuse/suck out the liquidity in the economy and manages the currency pressure. It is operated through an exchange between the US dollar and the rupee

How it works?

Under dollar rupee sell/buy swap auction, Banks shall buy US dollars from the Reserve Bank of India. Against this INR rupees, Reserve Bank of India gives US Dollar to the banks.

RBI is trying to increase the US dollar liquidity in the market as there is a mismatch. The sell/buy swap to boost dollar liquidity should be seen in the context of the rupee opening 62 paise weaker on Thursday at 74.25/26 to the dollar (against the previous close of 73.63/64) and closing at 74.2150/2250. Intra-day the rupee tested a high and a low of 74.35 and 74.08, respectively.

Objective of USD/INR Buy/Sell swap auction?

In a statement on its website, the RBI said it was doing the swaps in view of the intense selling pressure witnessed worldwide on “extreme risk aversion due to the spread of COVID-19 infections”. This is “compounded by the slump in international crude prices and a decline in bond yields in advanced economies”. All asset classes are witnessing a spike in volatility, with mismatches in US dollar liquidity accentuating across the world, it noted.

Thursday’s swap is the first of many such possible ones to come, as the Indian central bank gears up to utilise its formidable foreign exchange reserves to soothe the nerves of the market. For this purpose, the level of forex reserves, at $487.24 billion as of March 6, “remains comfortable to meet any emergency.

It will ease the pressure on the rupee which is marching towards its record low.


The Reserve Bank of India is closely and continuously monitoring the rapidly evolving global situation and spill overs. It stands ready to take all necessary measures to ensure that the effects of the COVID-19 pandemic on the Indian economy are mitigated, and financial markets and institutions in India continue to function normally.

Dollar rupee sell/buy swap auction move is one of them.

Happy Investing.

Coronavirus opens an unpopular investing opportunity (not about long-term investing!)

Yields have dropped significantly in February. RBI’s initiatives like the LTRO (Long Term Repo Auction) along with the migration of capital to safer harbours like the sovereign bonds have led to a softening in the yields of Indian government securities as well.

G-sec Yield Movement for Feb’20

Cash & cash equivalents have been investor darlings during times of crisis, but considering other developing economics, the love has extended to duration-oriented debt funds as well.

In light of further global trade slowdown and increased probability of rate cut – taking cue from the US Fed’s emergency 50 bps rate cut, there’s a probability that RBI follows suit leading to further softening of the yield. However, we do not believe that the same is an absolute necessity.

Takeaways for debt fund investors

  • Short to medium duration bonds (average effective maturity of 6 to 8 years) could deliver better than average returns.
  • Investors must avoid taking on credit risks as far as possible and move to funds with a higher allocation to sovereign securities.

RBI’S INR 1.76 Lakh Crore Defibrillation to The Indian Economy

Following Nirmala Sitharaman’s prescribed economic booster shot late last Friday, RBI decided to inject the Government coffers with a heavy dosage of surplus reserves of INR 1.76 lakh crore late evening yesterday.

This slew of economy-reinvigorating measures by the GoI and RBI’s large-hearted contribution comes amid a time when India is surrounded by a global, synchronized slowdown. This time, with global pressure mounting and the Indian economy staring at a downside risk of 30bps-40bps, RBI loosened its grip on fiscal prudence and seems to have acknowledged stimulus as the need of the hour.

The Bimal Jalan committee was set up under the stewardship of the renowned former RBI governor Bimal Jalan with an objective to recommend ways to utilize RBI’s excess cash reserve and part transfer to the Government of India. Though RBI has been among the most resilient Central Banks globally in terms of deviating from the established norms for fiscal prudence, the committee’s recommendations were reportedly guided by the fact that the central bank’s resilience should be in line with larger public policy objectives.


No makhan-chori this Janmashtami!

O’ naughty Krishna, stealing butter sure was fun,
With friends supporting, it was a pretty good run


But Mommy waited around the corner with a loving whack,
And then, came a time when all had to be given back

Just a day before Indians celebrated the birth of the natkhat & loving Lord Krishna, the Finance Ministry presented Indians with more than one reason to celebrate the day with even more enthusiasm.

The biggest announcement making headlines is the withdrawal of recently proposed colossal surcharge rates applicable on investments in equity/equity-oriented schemes. The proposed surcharge took tax burden up to as high as an effective 42.7% which was obviously received with an equally massive backlash by foreign portfolio investors by way of heavy-duty offloading of Indian equities.


You’re probably being the ‘bazaar’ fool!

Some said incoming was abundant rain,
Ol’ John bought a farm & sowed to gain.

Some said they knew it would snow,
Ol’ John bought firewood that’d glow.

Some said the horizon seemed sunny,
Ol’ John bought hats to make some money.

Alas! The visitor was spring and breeze so cool,
Markets rejoiced, while Ol’ John remained the ‘bazaar fool’

Ol’ John was simply trying to play every story that the market fed him but unfortunately landed up being the ‘bazaar fool’ as he lost everything to the chaos. This is something similar that has been happening with many investors, especially with the novices.

If you’ve been reading too many pink newspapers lately, you would have probably convinced yourself to believe that it’s almost game over for global and Indian equities.

But, is it so? Or are you simply being played & made the ‘bazaar fool’?


This time, “action” begins after the “cut”

The world’s hogging on rate cuts,
Driving investors across the world nuts.
We all want cheaper loans and growth,
But is this the only way to get both?

You must have already heard about the 35-bps rate cut by the RBI in its monetary policy meeting, but here’s something you would have missed – India was not the only to surprise with a deeper-than-expected rate cut. The Reserve Bank of New Zealand caught the market off-guard with a rate cut of 50 bps (which is twice the expected cut) bringing its official cash rate to an all-time low of 1% while Bank of Thailand cut its rate by 25 bps for the first time since 2015. This has happened only in the next couple of days following a rate-cut announcement by the U.S. Federal Reserve.



Understanding Defined Benefit Plan

Health insurance covers your unfortunate medical expenses. Your hard-earned money can be utilized for better. The cover you buy also includes pre and post hospitalization expenses and other benefits. On the other hand, defined benefit plans policy work the same.
Defined benefit plans are the type of health insurance plan where a predefined payment will be made to the policyholder on the occurrence of predefined events irrespective of how much expenses have been incurred as hospitalization expenses. Thus, the sum assured is not dependent on your hospitalization expenses — no need to furnish hospital bills or any other bills to claim the benefit.
Under the defined benefit plan, we have

  1. Critical illness plan
  2. Hospital Daily cash plan
  3. Any other health insurance plan which makes pre-defined payments to the policyholder on the occurrence of a pre-defined event irrespective of whether and how much expense has been incurred on treatment.


mid and small cap

There’s more to your mid/small-cap portfolio than you can see

We all know a kid who remained at the bottom of the class long enough for people to lose all faith in his progress only to be surprised when he lands a great opportunity and is perhaps more successful in life than most peers.

Even in Indian equities, many in the small/mid-cap space are assumed to be underdogs till one fine day when an opportunity comes knocking and it hits one out of the park. True, one cannot simply generalise all small/mid-cap stocks to be underrated, but the ones that offer a massive wealth-creation opportunity along with business turnaround.

While Indian capital markets, along with other emerging nations, witnessed a difficult phase last year, bellwether index Nifty still managed to climb to an all-time high last month but the small-caps at the bottom of the market-cap was unable to keep pace. At the time of writing this NIFTY50 has delivered a one-year return of ~3% but the NIFTY Smallcap 100 recorded a steep -16% decline and NIFTY midcap 50 slumped by almost 7% for the same period. The valuation polarization is too sharp. We look at mid and small-caps creating new bottoms and the basket dragging quite a few high-quality stocks along – this pushes them into the undervalued zone.



SEBI turns hero for investors, Trump three-way fist bumps with Shinzo and Modi and more

Monsoon seems to have brought along cheer on many fronts – right from pleasant weather to pleasant news for investors. Here’s what you must know to reassure yourself that your investments are headed in the right direction.

SEBI wears the cape to save investors once again

While Indian investors have only recently realized the ugly side of credit risk, SEBI has stepped in to ensure that investors are protected. SEBI’s recent circular tightens regulations for mutual funds, especially for the debt funds to offer insulation against the increasing probability of further markdowns on already sub-rated instruments.

Here are the most notable measures that will augur well for mutual fund investors.