ICICI Securities Primary Dealership says hard to repeat profit levels
By Selene 0
Mumbai: ICICI Securities Primary Dealership Ltd, one of India’s biggest bond houses, says it will struggle to repeat profit levels seen last year as debt-market volatility dwindles.
The central bank is likely to keep benchmark interest rates unchanged, reducing the chances of a substantial move in yields and thus making it challenging for primary dealers to generate income, Shailendra Jhingan, managing director and chief executive at the Mumbai-based firm that underwrites local sovereign-bond auctions, said in an interview.
“A range-bound market is not where our kind of rate-driven businesses thrive,” Jhingan said. “You need a strong directional view on interest rates to thrive and it will be a challenge in a range-bound market.”
ICICI Primary Dealership posted a net profit of Rs412 crore ($ 64.3 million) in the 12 months through March, more than doubling that of the previous year, as bond yields tumbled amid an accommodative monetary policy stance. At the same time, Prime Minister Narendra Modi’s recall of certain banknotes, which spurred an influx of funds into the banking system, boosted demand for debt.
The yield on India’s benchmark 10-year bond has moved in a range of 44 basis points since the start of April, compared with 140 basis points in the previous 12 months. A gauge of the debt’s 30-day historical volatility has fallen to 11% from a high of 19% in the year ended March.
The Reserve Bank of India (RBI) is likely to keep interest rates unchanged in the fiscal year that began 1 April as it seeks to achieve its target of 4% retail inflation in a calibrated and durable manner, Jhingan said.
“The RBI’s comfort will come from seeing core inflation moving toward 4 percent in a sustainable manner,” he said. “So in that sense, the bar for a rate cut is much higher than a rate hike.”
The annual inflation rate fell to a record-low 2.99% in April as food costs eased. Price gains will undershoot the RBI’s trajectory significantly in the April-September period, but will rise to average 4.6% to 4.7% in the second half of the fiscal year, Jhingan said.
Jhingan favours the five-to seven-year sector of the government bond curve as yields there have failed to match the decline in those of longer maturities. The yield on the newly issued 10-year note is likely to stay in a range of 6.5% to 7%, he said.
“Rates are not going to change,” Jhingan said. “It is very difficult to foresee bond yields coming down significantly. India’s macro fundamentals are stable, which kind of puts a cap on yields as well.”
ICICI Securities PD, a unit of private lender ICICI Bank Ltd, will focus on diversifying further into fee-based segments such as debt capital markets, though that will also be a challenge given the aggressive reduction by banks in their base lending rates, he said. Bloomberg
First Published: Thu, May 18 2017. 12 42 PM IST