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India has the biggest bond market among emerging economies that’s not covered by global indexes, but bankers say that may change soon, potentially drawing in billions of dollars in inflows. Russia’s recent exclusion is one reason why.

Morgan Stanley expects an announcement that India will be included in JPMorgan & Chase Co.’s emerging markets bond index as early as mid-September with the actual entry in the third quarter next year. Goldman Sachs Group Inc. sees that announcement coming in the fourth quarter this year and inclusion in the second or third quarter in 2023. Both expect India’s weight at 10%, the maximum for a country in the index, and potential inflows of $30 billion from the move.

Getting high-yielding Indian sovereign bonds into global indexes would make it easier for overseas investors to put their money into Asia’s third-biggest economy with its $1 trillion debt market. It would follow many false starts over the years that resulted from wariness about debt inflows and disagreements including one on tax breaks for foreigners. Russia’s exclusion from the JPMorgan gauges after it invaded Ukraine may have added to incentives for the index compilers to fill the hole with Indian debt.

JPMorgan, one of the major index providers, has been collecting feedback from investors over including India in its Government Bond Index - Emerging Markets Global Diversified, or GBI-EM. More than 60% of real money investors are ready or almost ready for India’s inclusion, a Morgan Stanley survey showed. A spokesperson for JPMorgan in India declined to comment.

“India would offer much needed diversification to the GBI-EM index given the different structure of its economy, and so would be a strong addition to the index from a long-term perspective,” said Nivedita Sunil, portfolio manager for Asia and EM debt at Lombard Odier (Singapore) Ltd. “We have held consultations with the index provider and we are broadly supportive of it.”

Bond traders in India have had their hopes dashed in the past on index inclusion. There were widespread expectations in February that the government would announce a tax break for foreign investors in the budget that would facilitate trading of the nation’s debt on platforms such as Euroclear.

Dashed Expectations

Instead, the budget was silent on the issue. Officials have said they decided not to exempt international bond transactions from taxes, and they would like settlement of bonds to be done locally.

“India has its own size and heft to act on its own,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management. “But it is important to make a strategic decision and stick with it, rather than send out conflicting signals.”

Meanwhile, in the GBI-EM index Russia had a weight of about 8% before it was removed, and now there are seven countries with a weight of 10% each and 13 countries sharing the remaining 30%, according to the Morgan Stanley note.

“The exclusion of Russia has made the index more concentrated and unbalanced,” Morgan Stanley strategists Min Dai, Madan Reddy and Gek Teng Khoo wrote in a note early September. “Hence JPMorgan has more incentive to include India even without Euroclear, as long as GBI-EM investors don’t object to that.”

India is currently ‘on track’ to be placed on index watch for inclusion in JPMorgan’s bond index, according to the bank. It’s also on the FTSE Russell watch list to get into its emerging market debt index.

Bloomberg LP is the parent company of Bloomberg Index Services Ltd, which administers indexes that compete from those by other service providers.

Renewed market talk on index inclusion helped revive flows into rupee-denominated bonds last month after six continuous months of outflows. Foreign inflows will be crucial to meet the nation’s ever-growing bond supply as its funding needs expand.

Authorities have taken some steps to ease rules for foreigners. Recent regulations like allowing custodian banks to pre-fund trades on behalf of foreign investors and extended settlement timings are examples, according to Goldman Sachs. Still, key issues remain.

“We think the two biggest operational challenges are account opening time and the burdensome trading requirements,” said Eric Lo, a fixed-income fund manager at Manulife Investment Management. He said it can take up to nine months to open a local India bond trading account, but operational constraints like those aren’t a “show stopper” for the firm to invest in the market.

The Centre is unlikely to extend a scheme for providing free foodgrains to vulnerable sections beyond September, a former agriculture secretary said.

The government in April 2020 unveiled the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY), billed as the largest food security program in the world.

“After September it will not be extended, in my view,” Siraj Hussain, who as agriculture secretary oversaw formulation of several welfare schemes in Prime Minister Narendra Modi’s first term, told Moneycontrol.

“Neither we have the foodgrains nor do we have the money,” Siraj Hussain, who is the promoter of Arcus Policy Research, said. “We don’t have the resources and the economy is recovering so there is no need for extending it.”

Under PM-GKAY, the government has been distributing additional, free-of-cost foodgrains to around 800 million National Food Security Act (NFSA) beneficiaries to mitigate the hardships faced by the poor after the outbreak of COVID.

Five kilograms of foodgrains are provided per person per month to all NFSA beneficiaries, in addition to the normal quota of heavily subsidised foodgrains under the Act.

PM-GKAY was initially operational from April to June 2020, but it has since been extended multiple times. It is currently in force until September-end.

The scheme, fully funded by the Centre, would have entailed a total expenditure of nearly Rs 3.40 lakh crore if it ceases this month.

Expenditure management

The government is on course to maintaining its budget deficit at the targeted 6.4 percent of GDP in this financial year, but is yet to decide on extending the free foodgrains scheme beyond September, Finance Secretary T V Somanathan said last week.

Maintaining the fiscal deficit will require deft expenditure management.

Meanwhile, food prices have been on an upswing globally since Russia’s invasion of Ukraine in February. Changing weather patterns have hurt sowing of summer-sown crops and food stocks have dipped. India has curbed outbound shipments of wheat and wheat flour. It has also prohibited exports of broken rice and imposed a levy on shipments of unmilled and husked brown varieties.

India’s rice stocks in the central pool as of August 1 stood at 279.52 lakh tonnes and those of wheat at 266.45 lakh tonnes, according to the Food Corporation of India (FCI).

According to the buffer norms, FCI should have 102.5 lakh tonnes of rice and 205.2 lakh tonnes of wheat, including 20 lakh tonnes of rice and 30 lakh tonnes of wheat in strategic reserves as on October 1.

The aggregate allocation of free foodgrains under the PM-GKAY will stand at an estimated 1,003 lakh tonnes at the end of September.

Rural vs. urban economy 

To ensure foodgrain stock management, the government substituted a quantity of about 11.06 lakh tonnes of wheat per month under the scheme into rice for five months from May to September.

Meanwhile, the economy has been on an upswing, as indicated by a recent spate of data. Inflation, which is still above the central bank’s medium-term target, has also come off eight-year highs.

To be sure, the decision on extension of the scheme will also depend on the government’s assessment of the rural economy, which is trailing the urban economy.

Retail sales of automobiles in India grew 8.31 per cent in August this year on the back of increase in registrations of vehicles across all major segments, automobile dealers' body FADA said on Thursday.

As per data released by the Federation of Automobile Dealers Associations (FADA), total vehicle retail sales in the country stood at 15,21,490 units last month as compared to 14,04,704 units in August 2021.

Passenger vehicles (PV) retail sales stood at 2,74,448 units as compared to 2,57,672 units in the year-ago month, a growth of 6.51 per cent.

Two-wheeler (2W) retail sales also grew by 8.52 per cent at 10,74,266 units in August 2022 as against 9,89,969 units in the same month last year, it added.

FADA said the three-wheeler (3W) segment witnessed the highest growth rate last month posting 83.14 per cent increase at 56,313 units, up from 30,748 units in the same month a year ago.

robust 24.12 per cent growth at 67,158 units as against 54,107 units in the year-ago month.

FADA President Manish Raj Singhania said August retail sales were not encouraging and not as per expectations of dealers, who anticipated a good start to the festive season with Ganesh Chaturthi.

"When compared with August 2019, a pre-COVID month, total vehicle retails fell by 7 per cent. While PV outperformed handsomely by growing 41 per cent, CV also turned positive by growing 6 per cent and thus came out of the COVID blues. All the other segments were in the red with 2W, 3W and tractors falling by 16 per cent, 1 per cent and 7 per cent, respectively," he added.

Singhania said although the 2W segment grew 8.5 per cent last month on a year-on-year basis, "it continues to face COVID blues due to underperformance of Bharat (rural India) and is still not above 2019 levels".

"This coupled with price hikes has made the 2W product out of reach for most entry-level customers. With erratic monsoon, the crop realisation has been low and flood-like situation has restricted customer movement," he said.

On the other hand, the PV segment continues to be on a strong run as demand for all sub categories of vehicles except entry-level remained strong.

"This is also aided by new feature-rich launches which OEMs have been doing since the last few months. With semiconductor shortage slowly becoming a passe, vehicle availability has definitely improved but waiting period continues to remain due to high demand in higher feature rich variants," Singhania said.

Similarly, he said the CV segment also continues to witness an upswing in economic activities post monsoon.

The government's infrastructure push, new launches by OEMs and better conversion in fleet operations has kept the segment in the green, he said, adding "the passenger carrier segment is also showing good demand due to increased buying from educational institutions".

The 3W space has now also equalled 2019 sales for the first time. Electrification is also the highest in this category with e-rickshaw leading the way.

"There is a clear indication that customers are now preferring electric vehicles over internal combustion engine (ICE) vehicles as ICE 3W continues to see double-digit degrowth when compared to pre-COVID levels," Singhania said.

On the outlook, FADA said , with easing of supply, the PV segment will definitely see the best ever festivities (Navratri and Diwali) in the last one decade.

"Along with this, if vehicle prices continue to remain stable and there are no more health related threats, we may see an uptick in the much awaited 2W space which has not shown the required growth since last festivals."

While Onam and Navratri fall in September, the month also has 15-day period of Shraadh, generally considered as an inauspicious period for buying vehicles, it added.

Interest rate actions by the Reserve Bank of India (RBI) alone cannot lower inflation and the burden is being shared with fiscal policy, Finance Minister Nirmala Sitharaman said on September 8.

Sitharaman also seemingly suggested that the RBI may not have to take as much action as central banks of developed countries to bring down inflation.

"The Reserve Bank will have to synchronise. It may not synchronise as much as developed central banks," she said while speaking at the Indian Council for Research on International Economic Relations conference on taming inflation.

"I am not prescribing anything to the Reserve Bank, I am not giving any forward direction to the central bank. But it is the truth - India's solution to handling the economy, part of which is handling inflation also, is an exercise where the fiscal policy together with monetary policy has been at work. It can't be singularly left to monetary policy, which has proved totally ineffective in many countries," Sitharaman said.

The finance minister's comments came on the back of a steep rate hike cycle by the RBI, with its Monetary Policy Committee (MPC) having hiked the repo rate by a massive 140 basis points to 5.4 percent in the last four months to fight elevated inflation.

India's Consumer Price Index (CPI) inflation eased to a five-month low of 6.71 percent in July. However, it has spent seven straight months outside the RBI's 2-6 percent tolerance range. The central bank is only two months away from failure, which occurs when the average inflation stays beyond the tolerance range for three consecutive quarters. Moreover, inflation has been above the medium-term target of 4 percent for 34 consecutive months.

In the event of a failure, the RBI must submit a report to the government detailing the reasons for the failure, the steps it plans to take to revert inflation to the target, and the time it thinks it would take.

Economists see another rate hike by the MPC at its next meeting later this month, with a terminal repo rate of around 6 percent expected to be reached by the end of 2022.

In her speech today, the finance minster said the Indian experience over the last couple of years had shown that the monetary policy, while key, was not enough to reduce inflation.

"India's experience in handling inflation depends so much on so many different factors. The central bank, its instruments, its interest rate management form a very critical part of it, but it cannot be the one and only one," she said.

The RBI has been cognisant of the role played by the government. On August 5, Governor Shaktikanta Das had said in his statement while announcing the MPC's decision that the government's supply-side interventions were expected to further bring down edible oil prices.

More broadly, external member Ashima Goyal noted in the minutes of the August 3-5 meeting that "coordinated fiscal and monetary policy action to reduce inflation while maintaining adequate demand has worked well".

NEW DELHI (Reuters) -Fitch Group unit CreditSights said it had discovered calculation errors in its recent debt report on two power and transmission companies controlled by India's richest person, Gautam Adani, following a conversation with the management.

CreditSights's report late last month calling the conglomerate "deeply overleveraged" and flagging other risks had sent shares of many Adani companies down.

The debt research firm said in a report dated Sept. 7 that it had spoken with Adani Group's finance and other executives and reconciled some figures for Adani Transmission and Adani Power.

"Management views that the group's leverage is at manageable levels, and that its expansion plans have not been mainly debt funded," CreditSights said about the group that has announced deals worth billions of dollars this year alone.

For Adani Transmission, CreditSights corrected its earnings before interest, tax and amortisation (EBITDA), or core profit, estimate to 52 billion rupees ($652.45 million) from 42 billion rupees earlier. For Adani Power, it corrected its gross debt estimate to 489 billion rupees from 582 billion rupees.

It did not give the period for the estimates.

"These corrections did not change our investment recommendations," CreditSights said, adding that it, however, did not have formal recommendations on the two power and transmission companies.

The combined market value of the Adani Group's seven publicly traded companies - flagship Adani Enterprises, Adani Wilmar, Adani Ports, Adani Green Energy, Adani Transmission, Adani Total Gas and Adani Power - has increased about tenfold in the past three years to about $251 billion.

($1 = 79.7000 Indian rupees)

Ecuador reached a preliminary agreement with indigenous groups to declare a temporary moratorium on 16 oil blocks, Energy and Mining Minister Xavier Vera said on Wednesday, a turning point in negotiations aimed at staving off renewed street protests.

President Guillermo Lasso, a conservative ex-banker, opened a 90-day dialogue in July to hash out implementation of a deal, ending more than two weeks of indigenous protests against his economic and environmental agenda.

The demonstrations left at least eight people dead and severely impacted the oil industry. The protests forced price cuts to gasoline and diesel, and enactment of fertilizer subsidies and other measures the government says will cost $600 million.

Indigenous groups are demanding a moratorium on oil and resource extraction and for current concessions to be declared null. Lasso has agreed to suspend approvals for new projects in ancestral indigenous territory, environmentally-protected areas and archaeological zones.

"As the state we are showing that we are conceding to the request," Energy Minister Vera told reporters.

The moratorium will affect blocks in the south, where there are no exploration and production operations, and will be in place until a law establishes free and informed prior consultation, Vera said.

The government will also not grant any further mining concessions until the law for prior consultation has been approved, Vera said, expecting that in the next 12 months.

Exports from Ecuador's two large-scale gold and copper mines are quickly making the sector one of the country's most fiscally important. Ecuador expects mineral sales of at least $2.8 billion this year.

"Our position is no to mining, that is the starting point and from there we'll see the government's proposal" said Gilberto Talahua, president of an indigenous group from Bolivar province. Bolivar is home to the Curipamba copper project, set to become Ecuador's third major mine.

The agreements regarding oil and mining will be signed on Friday, as will deals on advancing productivity and fuel subsidies, the government said.

Indigenous leaders were not immediately available to comment on the preliminary deals laid out by Vera.

The only deal signed so far is on debt forgiveness for small-scale farmers, with some indigenous leaders threatening to abandon negotiations if progress is not made more quickly.

"We might not have another option but renewed presence in the streets," negotiator Blanca Chancoso, ex-president of the Ecuarunari indigenous organization, told Reuters.

"The strike hasn't ended for us … We hope (negotiations) won't just be a waste."

Other areas up for discussion in the talks set to last until mid-October, include price controls on more than 40 basic products.

The government says it is engaging with all protester demands as Lasso looks to reach agreements with indigenous groups.

Former Energy Minister Fernando Santos told Reuters, however, he was not so sure a successful deal could be reached.

"The government is weak and President Lasso is very proud. He won't cede even by accident to indigenous demands, and Mr. Iza also has a triumphal position where he wants all or nothing," Santos said, referring to indigenous leader Leonidas Iza.

"I see difficult days and no will to make agreements," Santos said, adding oil and mining could stagnate.

Lasso's office directed questions to the ministry of government, which said it could not grant Reuters an interview until later this week.

Fuel subsidies will cost about $3.8 billion this year, more than annual public budgets for health, education and security.

"In these conditions it's difficult to tilt the balance toward the negotiations," said political analyst Alfredo Espinosa, who blames Lasso's unpopularity and his disconnection from citizens.

"It's like a hostage negotiating with their captor, which is the indigenous movement."

The Union Cabinet on Wednesday approved a policy for long-term leasing of railway land for the PM Gati Shakti programme, which the government said will help set up 300 cargo terminals and generate 125,000 jobs.

The new policy will help provide land lease for a longer period of up to 35 years as against five years at present, Union Minister Anurag Thakur told the media after the cabinet meeting.

With an employment generation potential of about 125,000 jobs, the policy will also bring more revenue to the Railways, 300 cargo terminals will be developed in five years, said Thakur.

The new policy will enable the integrated development of infrastructure and more cargo terminals.

Thakur said that apart from leasing the land for setting up cargo terminals, these land parcels would also be used for setting up social infrastructures like hospitals and schools through public-private partnership mode.

In addition to this, solar plants would also be set up on railway land, the minister added.

Thakur informed that land would be leased for new stakeholders for up to 35 years at 1.5 per cent of market value of the land.

British Prime Minister Liz Truss is not new to India-UK ties. Earlier as an International Trade Secretary, and later as a Secretary of State in the Boris Johnson government, she had many virtual interactions with Indian policy-makers. She also visited India a few times in the recent past.

India-UK ties have already been elevated to a ‘comprehensive strategic partnership’, and an ambitious ‘Roadmap 2030’ have been adopted. Fast track negotiations on bilateral Free Trade Agreement (FTA), and the British ‘Indo-Pacific tilt’ have provided new impetus to relations.

As trade minister, Truss saw India as a “big, major opportunity” and “UK and India in a sweet spot of the trade dynamics”. She launched the India-UK Enhanced Trade Partnership (ETP) in early 2021, and believed that “working with India will help enhance the UK’s position as a global hub for digital and services”. While interacting with the Conservative Friends of India during her campaign, Truss asserted that she is “very, very committed to the UK-India relationship”.

As the fourth British Prime Minister in six years, she is taking over at a time when the UK is facing serious economic, political, and foreign policy challenges. The Conservative Party is badly divided. The post-Brexit disruptions are still being felt. The post-pandemic recovery is rocked by the war in Ukraine, higher energy prices, and unprecedented inflation. So, managing different factions within the party, and announcing a new growth and energy strategy will be on top of her agenda.

During the campaign, she asserted that her plan for growth is to “built on Conservative ideas: tax cuts, supply-side reform and deregulation”. Now she wants to “transform Britain into an aspiration nation” with the priorities on economy, energy, and National Health Service (NHS). In the coming days, her government has to roll out specific details of these plans.

Apart from broader convergence of Britain’s post-Brexit ambitions, and India’s economic and strategic priorities, a major deliverable expected is a bilateral FTA. During Johnson’s India visit early this year, a deadline of an agreement by Diwali was fixed.

As 19 out of 26 chapters are already closed, Indian policy-makers are confident that an agreement by the deadline is within reach. Even if we are able to see an agreement by the end of 2022, it will be quite an achievement as negotiations started only in January. An India-UK FTA also has the potential to provide a broader template to India’s other trade negotiations including with the European Union. However, if negotiations are prolonged, it will impact momentum created by the newly-signed FTA’s with Australia and the United Arab Emirates.

Normally, countries sign trade agreements when economic conditions are more favourable. The conditions in the UK are clearly not encouraging when inflation is at a 40-year-high, and the economy is heading towards recession. Although Indian policy-makers are making positive statements, economic difficulties along with change in leadership in the UK may delay the conclusion of negotiations.

Although the UK's Indo-Pacific tilt has been discussed widely, at the moment, London is focused more on war in Ukraine. This is an area where Indian and British perceptions differ. In March when Truss visited India as part of Britain’s ‘wider diplomatic push’ on war in Ukraine, she hoped that Indian views in Russia would change. Her trip to India had also coincided with Russian Foreign Minister Sergei Lavrov’s visit to New Delhi at the same time. On sanctions against Russia, sharp exchanges were witnessed between Truss and Indian Foreign Minister S Jaishankar.

As she is quite hawkish on Russia at the moment, convergence on many foreign policy issues may not happen automatically. This may impact slowly developing India-UK defence and security cooperation.

Domestic economic priorities, and evolving geopolitical developments including the rise of assertive China have helped boost India-UK ties. Many of the new initiatives were facilitated by Johnson’s close bond with Prime Minister Narendra Modi. As Truss has been part of this process, it will be easy for her to continue with the same agenda. At the moment she may be occupied with domestic economic issues, and Russia. But the broad direction of India-UK ties has already been set. This will be further strengthened by the bilateral FTA whenever it is signed.

Gold prices fell on Wednesday in international markets as the US dollar and Treasury yields rose after economic data bolstered expectations the Federal Reserve will continue on an aggressive rate-hike path. Spot gold was down 0.3% at $1,696.30 per ounce as of 0127 GMT.

At 9.41am, gold contracts were trading 0.52 percent lower on the Multi-Commodity Exchange (MCX) at Rs 50,020 per 10 grams and silver shed 0.72 percent at Rs 52,766 a kilogram.

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Trading Strategy

Nirpendra Yadav, Senior Commodity Research Analyst at Swastika Investmart

Better US economic data signals better health of the economy that supports benchmark Treasury yield which ramps up demand for the US Dollar. Precious metals gave away the day's gains as the US dollar index crossed the 110 mark yesterday. On the data front, US Service PMI stood at 56.9 versus 56.7 putting pressure on precious metal prices. Continuing upward move in the dollar, which moves opposite to gold prices, may put selling pressure on precious metals prices. Gold has resistance at Rs 50750 and support at Rs 50000. Silver has support at Rs 52700 and resistance at Rs 54400.

Pritam Patnaik, Head - Commodities, HNI & NRI Acquisitions, Axis Securities

A surging dollar index and bond yields on the back of a greater probability of Fed hiking rates by 75 basis points has seriously dented gold prices. Encouraged by positive data flows emerging from the US economy, the Fed could easily execute its plans to rein in inflation. With the probability of a 75 basis point hike increasing to 72%, it’s not surprising to see the impact on gold.

The Dollar Index jumped 0.4% to 110.25, an over 20-year high, while the 10-year US treasury yields were also trading at their highest level in the last two months. The bullion pack will be under pressure till the Fed event.

Tapan Patel, Senior Analyst (Commodities), HDFC Securities

Gold prices traded lower on Wednesday with spot gold prices at COMEX trading 0.30% down near $1697 per ounce in the morning trade. Gold prices fell below $1700 per ounce on stronger dollar and better than expected US economic data boosting expectations of aggressive rate hike from Fed. The dollar index surged above the 110 mark lowering demand for safe haven metals.

We expect gold prices to trade sideways to down for the day with COMEX spot gold support at $1676 and resistance at $1720 per ounce. MCX gold October support lies at Rs 49800 and resistance at Rs 50500 per 10 grams.