Exporters Predict `Sunny Days' for Orders Will Boost Rupee: India Credit

Source: Bloomberg By Tushar Dhara - Jan 17, 2011

Exporters in India say the surge in shipments at the end of 2010 will likely continue in a trend that may bolster the rupee and attract international investors to the nation’s bonds.
Exports expanded 36.4 percent in December while imports contracted 11.1 percent, Trade Secretary Rahul Khullar said in a Jan. 8 briefing. Finance Minister Pranab Mukherjee said Dec. 10 that the current-account deficit in the year through March may be about 3 percent of gross domestic product, compared with an earlier estimate of as much as 3.5 percent.
Overseas sales of Indian goods will increase as the U.S. economy strengthens and China’s production costs climb, textile and garment makers Suryavanshi Spinning Mills Ltd. and Raymond Ltd. said. Foreign investors more than doubled holdings of Indian debt to $17.7 billion in 2010, exchange data show, spurring a 4.1 percent gain in the currency.
“If Finance Minister Mukherjee’s prediction comes true and exports accelerate, it is an indication of the strength of the Indian economy,” Namrata Padhye, a Mumbai-based economist at IDBI Gilts Ltd., a primary dealer of the country’s debt, said in an interview on Jan. 12. “That could spur investors to buy the nation’s bonds.”

Sunny Days
India’s government bonds returned 4.3 percent in the past year, according to indexes compiled by HSBC Holdings Plc. The notes underperformed securities in Indonesia, which returned 21.1 percent, the most in Asia. The 7.8 percent security due May 2020 will yield 8.05 percent by the end of this year, according to the median forecast of six economists in a Bloomberg survey, compared with 8.19 percent on Jan. 14.

The Indian currency fell 0.3 percent to 45.50 per dollar, according to data compiled by Bloomberg. The rupee’s gain last year trailed behind advances in the Malaysian ringgit, the Thai baht, the Taiwanese and Singapore dollars, the Philippine peso and the Indonesian rupiah.
“The export industry will see some sunny days,” said J.K. Agarwal, executive director of Suryavanshi Spinning Mills Ltd., which ships garments to the U.S., Europe, the Middle East and Japan. “Orders from the U.S. have jumped in the last quarter and the return of growth in that economy is giving us reasons to be more optimistic.”
Agarwal predicts the rupee may “test” 44 a dollar by March. “We are bracing for a stronger rupee simply because the economy is not only stable but is accelerating at a high pace.”
Sovereign Spread
The difference in yields between 10-year Indian government notes and U.S. Treasuries due in a decade has widened to 489 basis points from a six-month low of 442 on Dec. 28. India’s three-year government bond yield of 7.70 percent compares with 12.7 percent in Brazil, 3.26 percent in China and 7.2 percent in Russia.
The benchmark yield touched an eight-month high of 8.26 percent on Jan. 10 on concern that rising food and crude oil prices will prompt the central bank to raise interest rates for the seventh time in a year. Wholesale prices rose 8.43 percent in December, compared with 7.48 percent the previous month.