Indian economy has bottomed out-Debt Market

Optimism that elections now under way in India will usher in a government capable of improving the economy would support local energy companies’ efforts to secure foreign-currency funding for acquisitions, according to Mumbai-based brokerage Ambit Investment Advisors Pvt. Ltd.

Bond risk for Indian companies declined this year. The average cost of credit-default swaps protecting the debt of eight Indian issuers has slid to 297 basis points from 337 at the end of 2013, according to data provider CMA. The rupee rose 1.9% in 2014 to 60.6250 per dollar, while 10-year sovereign bond yields climbed six basis points to 8.89%.

The economy has bottomed out and from here GDP growth is likely to go up, increasing investor confidence,” Vaibhav Sanghavi, a Mumbai-based director at Ambit Investment Advisors, said in an interview on 25 April. Add to that the prospects of a stable new government, and the state-run oil companies can dream of becoming truly global.

India’s state oil companies are leading overseas borrowings by the nation’s businesses as they build on last year’s record $5.5 billion of energy acquisitions. Government-run refiners and explorers increased the amount raised from dollar bonds and loans by 80% to $4.18 billion so far in 2014 from a year earlier, 34% of the total by local firms, data compiled by Bloomberg show. Indian Oil Corp. Ltd (IOC), which plans to buy stakes in Petroliam Nasional Bhd’s (Petronas’s) projects in Canada, was the top borrower with $1.4 billion. Oil India Ltd, weighing bids for assets in Malaysia and Nigeria, ranked second with $1 billion, Indian oil companies are increasing global acquisitions to secure energy supplies and meet demand in the world’s second-most populous nation that’s expected to surge almost 40% by 2020 from 2010 levels. Overseas funding has gained appeal after Indian firms’ dollar debt costs relative to US yields slid 54 basis points this year to a 2007 low of 266 on 2 April, JPMorgan Chase and Co. data show. The spread is now 277 basis points, versus 352 for Chinese companies.

India’s success in reining the current-account deficit and inflation and the prospect of a pickup in the nation’s economy are helping revive confidence, supporting local companies’ bids to rein in overseas funding costs. The shortfall in the country’s broadest measure of trade probably narrowed 60% in the year ended 31 March from a record, according to finance minister P. Chidambaram. Consumer inflation has cooled to 8.3% from a peak of 11.2% in November. Economic expansion quickened to 4.9% last fiscal year from a decade-low 4.5% in the preceding period, according to government estimates.

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