Bank of America warns that record borrowing by Indian provinces will pressure bonds and contribute to keeping interest rates elevated.
Vikas Jain, BofA’s Head of India Fixed Income, Currencies, and Commodities trading, projects states will borrow a record 4.5 trillion rupees ($50.2 billion) in the quarter ending March. This figure represents a significant increase over the prior quarter.
The surge in debt issuance weakens demand, causing investors to seek a premium. This action increases borrowing costs for both state and federal governments. The heavy supply is a market concern, and real money investors remain hesitant to commit significant capital.
Furthermore, the situation risks crowding out private borrowers, thereby raising funding costs for companies.