India needs foreign capital to fund record borrowing: IDFC

Bloomberg

A bond fund manager who correctly predicted that India’s central bank would introduce a US Federal Reserve style Operation Twist, now says that the nation needs more foreign
capital to fund its record borrowing.
India’s borrowing may rise to 7.6 trillion rupees ($107 billion) for the fiscal year starting from April 1, according to Suyash Choudhary, head of fixed income at IDFC Asset Management Co. The market can only handle it if more foreign investors are allowed to participate and the central bank continues its Operation Twist, where it buys longer-maturity bonds and sells shorter-term ones.
Otherwise, the large borrowing size “will be a huge cause for concern,” Choudhary said, adding that long end of sovereign bond curve may remain volatile and the benchmark 10-year yield could rise over the 6.75% mark.
The market has struggled with a record government borrowing of 7.1 trillion rupees this fiscal year and while the central bank’s unprecedented bond operation kept long-end yields in check, fears that the budget deficit may widen further has pushed up yields since November.
Overseas funds have long sought greater access to
Indian debt but they hold just 3.4% of the almost 60 trillion rupees of outstanding sovereign bonds.