Indian State-Backed Company Bonds Offer Yield Value, HSBC Says

June 2 (Bloomberg) -- Bonds sold by Indian government- backed companies are where investors looking for yields of as much as 10 percent should put their money, according HSBC Holdings Plc.

“It’s a function of your time horizon and risk tolerance, but if you can get a 9 to 10 percent yield on Indian government risk you have to be thinking about that,” Tarun Kataria, HSBC’s global banking and markets head for India, said in a phone interview from Mumbai.

With Asia’s third-largest economy growing at 5.8 percent in the March quarter, better than the 5 percent economists were expecting, India “probably with the exception of China, remains the only 5 percent growth story globally,” Kataria said.

India’s government is stepping up spending to spur growth and has said it plans to raise a record 2.41 trillion rupees ($51 billion) from bonds sales in the six months to Sept. 30. The nation’s gross domestic product growth rate may rise to 6.2 percent in 2010 on expansion of the financial services, real estate and business services industries, Morgan Stanley said in a May 29 note to clients.

Bonds sold by State Bank of India Ltd. March 6 and maturing in 2018 are yielding 8.6 percent, while 10-year bonds sold by NTPC Ltd., India’s biggest electricity producer, May 5 are yielding 8.8 percent, according to data compiled by Bloomberg. Similar-maturity Indian government bonds are yielding 6.9 percent, the data show.

Lack of liquidity in India’s bond market is the one downside to its development, Kataria said.

Secondary Market

“Today it is basically a buy and hold market. At some point supply and demand dynamics will encourage secondary market trading,” he said, adding most buyers are mutual funds and life insurance companies.

Indian borrowers sold 538 billion rupees of bonds in the first five months of this year, 54 percent more than in the same period of 2008, Bloomberg data show. Money raised from share sales fell 63 percent through May 31 and the aggregate value of syndicated loans declined 10 percent.

India’s central bank increased the limit on ownership of corporate bonds by foreign investors to $15 billion from $6 billion in January. Last month it asked banks to stop giving guarantees to bonds sold by companies, saying such measures “impede the development of a genuine corporate debt market.”