BlackRock is still bullish on Indian bonds in spite of market concerns about PM Narendra Modi's narrow election win. Even though everyone anticipated that the BJP would win with a sizable majority, the party's failure to reach the 300 threshold meant that the victory margin was smaller than anticipated.
Many interpreted it as a bad omen because a coalition's formation would result in higher populist expenditure. Chief Investment Officer of BlackRock and head of APAC fundamental fixed income Neeraj Seth allegedly said that the Modi-led coalition is unlikely to deviate from budget consolidation. Additionally, he told Bloomberg in an interview that the Reserve Bank of India (RBI) will be able to undertake easing measures later this year if inflation stabilizes.
He remarked, "It's actually a good time to be in India for a long time." "I wouldn't adjust my opinions in light of the election results." Additionally, Seth stated that he preferred the more liquid 10- and seven-year bonds. As it became apparent that Modi's party had lost its majority in parliament on Tuesday, the country's financial markets plunged into meltdown.
Moody's Ratings speculates that this outcome might impede the budget consolidation process and postpone economic reforms. Before leveling off on Wednesday, the yield on the nation's benchmark ten-year bond increased by as much as 12 basis points on Tuesday, reaching its highest level since October.
Meanwhile, on the day of the election results, benchmark indexes saw a precipitous decline of around 5%.
Although there's a chance of more expenditure, Seth thinks that with Modi's coalition still in power, a significant break from budgetary restraint is unlikely. Following COVID, the BJP worked hard to cut the deficit, which it finally did in the most recent fiscal year, coming down to 5.6% of GDP. The government plans to lower the percentage in the upcoming years, with a goal of 4.5% by 2025–2026.
