NEW DELHI: There are no takers in India for corporate notes with even a whiff of credit risk. But the fear of global investors around over-leveraged Chinese real estate developers is such that money cannot stop being invested in Indian high yield dollar bonds.
Domestic debt issuance by everyone except the highest-rated borrowers has declined since the collapse of IL&FS Group, a major infrastructure financier, in September 2018.
Companies rated below AA have only managed to collect Rs 38,200 crore ($ 5.2 billion) this year, a far cry from their 2017 gain of Rs 2.1 crore lakhs.
The situation in the international market is exactly the opposite. Indian non-financial firms rated as garbage raised a record $ 9 billion this year, nearly three times the period a year earlier.
JSW Steel Ltd alone raised $ 1 billion last month. Magnate Gautam Adani has dethroned even historically trusted public sector issuers, such as Power Finance Corp and Export-Import Bank of India. Companies linked to Asia’s second richest man have raised $ 9 billion in the past five years, more than any other Indian borrower.
For investors wary of China, looking at India makes sense. At over $ 300 billion, the liabilities of the China Evergrande group alone are more than twice the size of India’s entire corporate bond market.
While no one knows which private sector or company in the People’s Republic will be punished next by Xi Jinping’s “common prosperity” campaign, foreign investors have a good idea of ​​which Indian business groups have good relations with the government. Prime Minister Narendra Modi.
Still, policymakers in New Delhi and Mumbai would prefer fundraising to take place locally, in their national currency. After all, they run a well-stocked liquidity bar, with a banking system surplus of between $ 90 billion and $ 130 billion since the end of June. It’s a risky ploy.
With the Federal Reserve poised to limit its generous monetary support to the pandemic-stricken US economy, India’s happy hours cannot last indefinitely.
To stimulate anemic investment and employment, the authorities want credit to recover. But how long can they wait when easy money is only invested in overvalued stocks? Leaving aside the local bond market, even corporate bank loans are refusing to budge.
The central bank may point inflation at 5.3%, within its target range, to postpone the inevitable tightening at its monetary policy meeting today.
Certainly, soaring world oil prices will bring unease to a country that imports most of its energy.
An acute shortage of coal in power plants could push inflation up as steelmakers pay more for the raw material. It could also add to the record trade deficit of nearly $ 23 billion in September.
The reassuring news is that India is not living from hand to mouth, with nearly $ 650 billion in foreign exchange reserves and an overall balance of payments that HSBC Holdings Plc expects to remain in surplus for years to come. .
Knowing that they are unlikely to lose money due to a sudden depreciation of the rupee, foreigners may continue to come looking for Indian stocks and bonds.
But the extra dollars come with a cost. Too strong a rupee against the inflation-adjusted currencies of trading partners leads to a loss of competitiveness. This is probably what is happening in India.
“In a version of Dutch Disease, an overvalued rupee could hamper the growth of domestic industry and employment,” said Ananth Narayan, analyst at the Observatory Group.
The surge in gold imports is often a sign of nervousness. Some of the increased demand can be attributed to jewelers. As the virus recedes, they refuel for the Hindu holiday season, which has just started. But could it also be that having made their money in stocks, the rich Indians buy the yellow metal and the Bitcoin because they know that the ultimate source of demand in the economy is weak, and that the currency is artificially? high?
As long as the rupee does not roll, India will get some of the capital fleeing from China. But love in Evergrande’s time is not eternal. The local credit market needs to get a little less cranky. Once the Fed begins to shrink its balance sheet, the moment may be lost.

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