As part of the bilateral trade deal, the US would reduce tariffs on Indian goods from 50% to 18%. This has already led to buying of Indian bonds and spread compression of 5 to 10 basis points in names like Vedanta, PFC and REC.
“There have been visible purchases in Indian bonds, including Vedanta, PFC and REC,” said a bond investor. “We see spreads tightening by 5 to 10 basis points. Vedanta, for example, has tightened almost 10 basis points. The tone is positive, although the exact numbers will become clearer as volumes pick up.”
The announcement of the trade deal late Monday also caused the Indian rupee to rise the most in seven years. A depreciating currency increases the cost of repayment of the rupee for companies borrowing abroad.
The Reserve Bank of India (RBI) said last year that it plans to relax external commercial borrowing (ECB) rules by rationalizing limits, relaxing maturity norms and removing cost caps. This is expected to reduce foreign financing costs and give Indian companies more flexibility to tap foreign capital as spreads continue to tighten.
Indian ECB volumes have been increasing in recent years. Indian companies had raised a record $61 billion through the ECB in FY25, compared to $48 billion in FY24. Market resilience is likely to benefit medium-dated issuers, including large public sector banks such as State Bank of India (SBI), which have offshore bonds maturing in FY27. Some issuers, including Greenko, which had previously replaced dollar repayments with rupee loans, may find foreign currency debt attractive again.
“If this environment continues with lower global interest rates, stronger inflows and regulatory easing, issuers that stayed away from foreign markets may return,” one banker said.
After the trade agreement was announced, government bond yields also fell by four basis points. The 10-year benchmark returned 6.72%
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