Reliance takes a $1b contrarian bond bet

The Reliance Group has boosted the duration of its bond portfolio, moving about Rs 7,000 crore ($1.1 billion) from short-term funds to income funds at some of India’s top asset managers in anticipation of a fall in interest rates, people with direct knowledge of the matter said.

The switch by the group that comprises Reliance Industries, India’s most valuable company, is predicated on the expectation that the central bank will cut rates further, the people said, asking not to be identified as they aren’t authorised to speak on the matter. That contrasts with a general trend that’s seeing bond traders pare exposure to longer-tenor notes on bets the Reserve Bank of India has little room to ease more after lowering borrowing costs last week and maintaining a neutral policy stance.

Reliance’s mandate, which came after the August 2 rate decision, has caused the switch in funds at atleast three asset managers, the people said. Controlled by Mukesh Ambani, the second-richest Asian, the group is one of the biggest investors in India’s fixed-income market that is dominated by banks.

The switch “appears to be a move to bolster treasury income by getting into a product that will offer some capital appreciation and accrual benefits as we approach the end of the rate cycle,” said Vidya Bala, head of research at FundsIndia.

A Reliance spokesman did not respond to an email, phone call and text message seeking comment.

Shorter-duration bonds in India have outperformed since the RBI’s rate-deciding panel reduced the key repurchase rate to 6 per cent and said it will watch incoming data. The five-year yield has dropped nine basis points since August 1, the day before the central bank’s meeting, to 6.45 per cent. The 10-year yield is up two basis points in the period to 6.46 per cent.

 Reliance Industries, the flagship, earned about Rs 9,400 crore, or about a quarter of its profit before tax, in the year ended March by investing its surplus cash in bank deposits and debt securities, according to its annual report. It held cash and cash equivalents of about Rs 72,100 crore as on June 30.