Even if some policymakers are talking about tightening, one of India's top banks believes investors can safely hang on to their sovereign debt because yields aren't expected to rise anytime soon.
In an interview, Ashish Parthasarathy, treasurer at HDFC Bank Ltd., the country's largest lender by market value, said investors shouldn't be concerned about unexpected losses and should keep their positions for now because record low rates and an abundance of cash should help eke out more profit in the coming quarters.
Even though a divide emerged among Reserve Bank of India members last month about how long ultra-easy policy can be maintained, the experienced banker remains upbeat. Following statements on normalising policy from central bankers, particularly some at the European Central Bank, markets throughout the world are getting more concerned about a tapering of asset purchases.
“We are not only in an accommodating mode, but we are also in a super-accommodative mode” in India, according to Parthasarthy, who has worked in the trading industry for over three decades. “Every central bank, including India's, wants to see long-term growth and will overlook higher inflationary pressures.”
Even after minutes from the RBI's most recent board meeting revealed division, he maintains his position. In the days following the election, 10-year government bond yields soared to 6.26 percent, the highest in more than a year.
Parthasarathy noted that HDFC Bank's treasury, which controls over 5 trillion rupees ($68 billion), has been hedging its bets across the yield curve. Bonds with a medium to longer maturity date appear to be more appealing than those with a shorter maturity date.
According to him, the Mumbai-based bank would not rule out additional declines in 10-year yields. This is at odds with the mainstream, which predicts benchmark yields would rise to 6.33 percent by the end of the year, up from 6.2 percent presently.
“This has been one of the easiest times to run a bank treasury as we can hold for a long time. You know that money is going to be easy, liquidity is going to be available, and any reversals will be slow and steady,” Parthasarathy said.
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