Indian bonds slump on stronger economic growth

The Indian government bonds slumped on Wednesday after reading higher than expected fourth quarter Gross Domestic Product (GDP), which lowered Reserve Banks of India’s (RBI) possibilities for any further interest rate cut in the up-coming policy meeting. The yield on the benchmark 10-year bonds rose near to 2 basis points to 7.489 percent and the yield on super-long 30-year bonds jumped 1-1/2 basis points to 7.864 percent by 07:10 GMT.

The Indian economy grew at 7.9 percent in the fourth quarter of fiscal 2015-16 on the back of consumption. It is further evident that the economy is witnessing a strong recovery on improved consumer as well as investor momentum. Headline economic growth has accelerated in the first three months till March to 7.9 percent. This remains one of the highest rates of quarterly growth in recent years. Only the growth performance in the second quarter of fiscal 2015 was better, reports confirmed.

However, on grounds of investment, the Indian diaspora remains really weak on stressed corporate balance sheets, low utilization of existing capacity and fragile business confidence. Gross fixed capital formation is showing a slower pace this fiscal than that during the same period last year. Though domestic consumption is driving the indicators of the economy, overseas demand remains weak, given the global turmoil that most economies are facing.

Hence, a lot depends on domestic consumer spending and government expenditure to keep the economy on track. However, the arrival of monsoon will play a key factor governing consumer demand-led growth, especially in rural areas. Meanwhile, the outlook remains positive for the next quarter amid growing investor confidence.

"Momentum is building up faster than anticipated, and there is demand pick-up in the horizon. This definitely spells out a positive story that there will soon be a recovery in private sector capex," said Shubhada Rao, Chief Economist, Yes Bank.

According to Reuters, Meanwhile, the RBI will auction 150 billion rupees of 91-day and 182-day treasury bills today. It is due to auction a similar amount of government notes on Jun. 3, including 80 billion rupees of the benchmark note.

In additions, markets will look forward to cues on arrival and distribution of annual monsoon rainfall. Meanwhile, the Sensex rose 0.31 percent or 83.35 points to 26,751.31 and Nifty-50 futures trading flat at 8,190 by 07:20 GMT.