Modi 2.0 effect: Bond market to remain bullish on FII investments, say experts

Narendra Modi winning the second stint in the recently concluded Lok Sabha Elections 2019 has fuelled the Foreign Institutional Investors' (FIIs) sentiment positively. Since the bond market is one of the major beneficiaries of the FII investment, market experts are highly bullish about the FIIs portfolio investment in the Indian bond market.

Speaking on the expected push to the bond markets Prakash Pandey, Head of Research at Fairwealth Securities said, "FIIs have been pumping into the Indian markets after the majority of the opinion polls predicted Narendra Modi victory in Lok Sabha Elections 2019. but, their investment was calibrated. Now, since Modi has won and he is going to lead the nation for the next five years, now FIIs are expected to pump more money into the Indian markets." Pandey said that FIIs mainly invest in equity and bonds. So, in the wake of FIIs pushing more money in Indian markets, bond markets would be an automatic beneficiary of their move.

Standing in sync with Prakash Pandey's view on FII fuelling Indian bond markets Suyash Choudhary, Head – Fixed Income, IDFC AMC said, "The election mandate of a continued strong government will help contain sovereign risk premium and allow the policy to focus on the local narrative of growth. The government seems to have little fiscal space given recent pressures and must balance incremental deficit expansion with the economy-wide cost of higher real long term rates. The RBI/MPC, on the other hand, have more room and should respond now with a more decisive focus on the guidance tool for both rates and liquidity. This, in our, view has the maximum chance to influence transmission. The view remains bullish on quality bonds (sovereign, SDL, AAA) and cautious on lower-rated credit." 

Elaborating upon the RBI role in this regard Suyash went on to add, "There is scope for RBI (and to some extent MPC) to more fully examine and utilize the tools available. Drawing from this framework, we think it is desirable for the MPC to shift monetary policy stance to accommodative."