India - Debt market update

31 JANUARY 2019

The liquidity conditions in the Indian bond market had tightened after the IL&FS default in September 18 / October 18. The conditions improved starting December 18 aided by the OMOs conducted by RBI. NBFC borrowing was recuperating at a higher cost as compared to what they were able to borrow at in August 18. However, with recent developments indicating concerns around exposures of Debt Mutual Funds, Citi analysts believe that liquidity conditions can tighten further as we head into the seasonally tight February-March period.

These developments indicate that risks in the Indian bond markets are elevated. Owing to this, we have changed the status of 9 debt Mutual Funds (ABSL Credit Risk Fund; DSP Credit Risk Fund; DSP Regular Savings Fund; Principal Cash Management Fund; Tata Short Term Bond Fund; HDFC Dynamic Debt Fund; UTI Dynamic Bond Fund; UTI Bond Fund and ABSL Dynamic Bond Fund) to “Not Approved/Under review” for distribution.

Fixed Income investors, subject to their respective risk appetites, may continue to focus on high credit quality with a preference for short duration and remain diversified in their portfolios.

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