The overall macro impact of the US-Iran war has been less than initially feared, with the outlook improving further on the interim peace deal, analysts including Danny Suwanapruti wrote in a note released Saturday.
The investment bank prefers the ultra-long-end bonds as more such debt enters the fully accessible route, the analysts wrote. “The front-end has already rallied sharply on lower oil prices over the past few weeks and the pricing out of RBI rate hike expectations.”
Goldman’s call coincides with a surge in foreign buying of Indian government bonds. Overseas holdings of index-eligible debt have risen by 397 billion rupees ($4.2 billion) so far in June, on course for the biggest-ever monthly purchase, according to Clearing Corp. of India data. Inflows surged after India scrapped taxes on debt for foreigners and expanded the pool of securities eligible for index inclusion.
Goldman Sachs has recommended buying India’s 30-year government bonds, citing easing inflation expectations, lower oil prices and reduced fiscal risks after the US-Iran ceasefire. The brokerage believes the long end of the bond curve offers better value as shorter-term bonds have already rallied.
The moves will likely make India’s eventual inclusion in the Bloomberg Global Aggregate Index increasingly “a question of timing rather than direction, with a mid-year announcement likely,” the Goldman analysts wrote.
Goldman estimates India’s index weight will be around 0.7%, based on the current outstanding size of FAR bonds, which could prompt around $15 billion of passive inflows over the phase-in period, the analysts wrote.
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