CPI dampener for bonds; IIP problem for RBI: ICICI Pru MF

Post the announcement of IIP and CPI numbers, Rahul Goswami, Head - Fixed Income, ICICI Prudential MF told CNBC-TV18 that CPI inflation has come at quite an elevated level and is definitely a dampener for bonds.

However, he said: "index of industrial production (IIP) coming in negative zone makes the situation far more challenging and difficult or complex for the Reserve Bank of India (RBI)".

Also read: May IIP contracts by 1.6%; CPI inflation rises to 9.87%

Below is the verbatim transcript of his interview to CNBC-TV18

Q1: You expect the bond markets to react negatively with consumer price index (CPI) coming in at 9.87 percent or anyway nobody had any hopes?

A: Monday will be very interesting because dollar-rupee continues to remain elevated at 59.75. CPI inflation has come at quite an elevated level, people were expecting numbers closer to 9.40-9.60 percent, but at 9.87 percent is definitely a dampener for bonds.

However, index of industrial production (IIP) coming in negative zone makes the situation far more challenging and difficult or complex for the Reserve Bank of India (RBI).

Q: Around 7.53 is where the 7.16 ten year paper closed. Would you see an up tick in the yields over there, you see it moving closer to 7.6?

A: I think 7.60 percent is a key number on the new 10-year benchmark. I would be keen to watch that and 7.58-7.60 number is a big resistance on the ten year bond and banks should emerge at those levels.

We continue to see very strong buying by the state owned banks and the insurance companies and the pure investor segment. So, that will cushion the bond market slide if it happens, though it will be fair to expect that if other things remain stable, other things don’t change fast then bond prices will open slightly weak.

However, we are sure that the investor segment will be there to support the prices and it will be a good opportunity for them to build positions on that.