By Mr. Anil Bamboli, Head, Fixed Income of HDFC Asset Management Company Limited (HDFC AMC).
“In an environment marked by elevated oil prices, firm global yields, and persistent geopolitical tensions in West Asia, alongside robust domestic growth momentum and an uptick in inflation, the RBI has acted prudently by raising the policy rate by 25 bps and shifting its stance to calibrated tightening. While the rate hike was broadly anticipated, markets were divided on the likelihood of a stance change. Although, change in stance is being perceived as slightly hawkish tilt to policy, we believe it is done to retain policy flexibility to react to evolving global / geopolitical events and not necessarily indicate an aggressive rate hike cycle.
A constructive element in the policy was the absence of liquidity measures such as OMOs or CRR adjustments. The upward revisions of 40 bps to growth and 20 bps to inflation were largely aligned with consensus. Additionally, strong FCNR(B) inflows, resilient exports, and improved FDI trends have helped ease external‑sector concerns and supported the INR.
Since the August policy, the Indian 10‑year benchmark yield has already risen by approximately 50 bps, effectively pricing in a significant portion of RBI’s tightening as well as higher US yields. With the spread between the 1‑year OIS and the 10‑year G‑sec now near the long‑term average of ~100 bps, a substantial amount of negative information is already reflected in valuations. We therefore remain constructive on Indian fixed‑income markets from a medium‑to‑long‑term perspective, while acknowledging that a sharp further rise in crude prices or additional increases in US Treasury yields remain key risks.”