Indian Gilt market sports optimistic outlook

New Delhi, Aug 13: The outlook of the Indian gilt market remains cautiously optimistic on cues from the US economy pointing towards the continuance of the pause in the Fed hiking cycle, at 5.25 per cent.

''After a disappointing GDP growth and a lesser than expected job growth, the probability of a continuance in the Fed rate hike has resulted in a mini bull run in the US gilts as well,'' a PNB Gilt News report said.

The Fed's decision to not raise the funds rate and keep it at 5.25 per cent, comes after more than two years of a consistent increase in the rate, which began from June, 2004 at 1 per cent.

However, on the flip side, analysts have raised concerns as to whether a slow-down, if at all, in the growth of the US economy, would have a negative impact on the global growth rates, influencing other Central banks across the globe to hike interest rates.

Among the countries that would be affected the most if such a thing was to happen is Japan. Though India would also go through some tough times, it would be in a better-off position than most large economies, analysts say.

A decline in exports across sectors like IT, BPO services and others dependent on foreign markets, would be negatively affected by a fall in the growth rate of the US economy this year.

On the other hand, a fear of the increased supply through auctions of government securities in the gilt market, and a possibility of fiscal slippage may prevent any build up in the Indian Gilt market.

Auctions at total of Rs 26,000 crore are touted in August and September.

RBI has announced the auction of two securities aggregating Rs 9,000 crore last week, of which Rs 6,000 crore was raised by re-issuing a 5-year benchmark security of 9.39 pr cent - GoI 2011, and Rs 3,000 crore was raised by re-issuing a 10-yr benchmark security of 7.59 per cent - GoI 2016.

Both securites are eligible for when issued trading.

''These securities may cause the market to fluctuate in a narrow range for some more time to come, though the market may start looking up gradually after the auction supply is distributed in the secondary market,'' the report said.

The long end of the yield curve has already seen some flattening in the last few days after RBI decided to replace the scheduled auction of long-term paper with the 10-year paper, the study said and added that the market may witness some more sustained buying in the long segment as the fear of continuous supply has been abated to an extent by RBI'a decision.

On the whole, however, the market seems to be poised for some recovery.

UNI