Fixed Income
Market Update
and Outlook
Market Update
and Outlook
Market Update
Ceasefire, OIL and INR
April 2026 witnessed ceasefire announcement early on and yet was marked by peak
uncertainty. Crude oil continued to trade at peak levels, raising concerns of pickup in
inflation with the global central bankers preferring to remain vigilant of inflation
concerns.
India
RBI Policy:
Against this backdrop, the RBI kept the policy rate unchanged in April policy (in line
with consensus expectations). According to RBI, the strong macro fundamentals
provided greater resilience to Indian economy to withstand shocks and provided the
rationale to retain pause. RBI projected FY27 inflation at 4.6%y/y and core inflation at
4.4%y/y. Growth is also projected to be robust at 6.9%y/y in FY27. On future policy
outlook amid war, the RBI will closely monitor incoming information and remain
vigilant.
Inflation:
March-26 CPI inflation rose to 3.40%y/y (February 2026 at 3.21%y/y). The rise in
monthly print was driven primarily by seasonal pick-up in sequential momentum
and increase in domestic cylinder prices (fallout of Iran war). Core inflation and
Super-core inflation (excluding petrol, gold etc) eased marginally to 3.37% y/y and
2.09%y/y respectively. With this, FY26 headline CPI stood at 2.06% y/y (~ RBI’s lower
bound Inflation target & in line with RBI’s projection); core inflation averaged ~4.1% y/y
(~ RBI’s Medium-term target) & super-core inflation (exc. Petrol, gold etc) averaged
2.81%y/y.
Foreign Trade:
In March-26, the trade deficit eased to US$21 bn (decline from peak of US$35 bn in
Jan 2026 and elevated US$27bn in Feb 2026). Both exports and imports decline on
the annual basis. During FY26, the exports growth was flattish, while imports grew at
~8%y/y. That said, the core goods exports & imports (excluding oil & gold) grew
modestly at ~5%y/y and 9%y/y respectively. During similar period, the net services
exports grew at robust ~15%y/y.
System Liquidity:
Monthly Avg system liquidity was ample at Rs. 3.8 trn in April 2026 from modest ~Rs. 1.5
trn in March 2026 on seasonality (govt spending and G-sec maturities).
Foreign Flows:
Iran war resulted in the net FPI outflows to the tune of ~US$14 bn in March 2026 and
US$7.5 bn in April 2026. YTD FPI outflows in the calendar year 2026 stood at US$20 bn
(as against outflow of US$12bn in CY25).
Currency:
After depreciating by 4%m/m in March 2026, INR improved on ceasefire
announcement and depreciated marginally in April 2026. INR stood on an average
93.6 against dollar (March 2026: 92.80). YTD Calendar year 2026 INR has depreciated
by ~5.4% impacted by the geopolitical concerns.
Yield Levels & Spreads:
After rising sharply in March 2026, the yield remained elevated in April 2026 on crude
prices, INR concerns and FPI outflows. War escalation at the start of the month
resulted in spike in yield, however the ceasefire early in the month helped in soothing
the sentiments and 10 yield moved in the narrow range of 6.87%-7.05% post ceasefire
announcement (March range: 6.64%-7.02%). It closed the month marginally higher at
7.01% (Jan 2026: 6.77%; Feb 2026: 6.66%; Mar 2026: 7.00%).
Taking cues from G-sec, SDL yields remained elevated amidst supply & global
concerns. 10-year SDLs moved in the range of 7.58%-7.77% (Prior month: 7.37%-7.75%).
It closed the month high at 7.68% (Feb 2026: 7.37%, Mar 2026: 7.61%). The average
spread between 10 yr SDL over G-sec stood lower at 68 bps during the month (Feb
2026: 75 bps, Mar 2026: 72 bps).
Similarly, 10-year AAA bond yields moved in the range of 7.57%-7.76% (Prior month:
7.38%-7.70%) and closed the month marginally higher at 7.71% (Mar 2026: 7.70%).
Global
Financial Markets:
UST yield continued to rise in April 2026 on Iran war related uncertainty, fiscal and
inflation concerns and lower expectation of rate cut during the year. 10 yr UST close
the month higher at 4.40 % (Jan 2026: 4.26%; Feb 2026: 3.97%; Mar 2026: 4.35%).
After appreciating by ~3% in March 2026 on war concerns, DXY depreciated by 1%
m/m in April 2026 on deescalation of war concerns. Calendar year till date the DXY
has appreciated by 1%.
As a result of fallout of Iran war, the crude witnessed sharp acceleration on account
of closure of Strait of Hormuz. While the brent crude oil has been on appreciating
mode since start of calendar year (Feb 2026: +6.4% m/m, Mar 2026: 46% m/m), oil
prices continued to surge further by ~14%m/m in April 2026 on global supply shock.
The average crude oil stood at US$117 barrel (Avg. lvl in Mar 2026: US$103/barrel)
Market View:
- In absence of clarity on Strait of Hormuz status, the financial, Foreign Exchange and commodity markets may likely to remain volatile in coming weeks and feeding into concerns on macro stability. In this context, crude price and INR(Indian Rupee) movement will be closely watched. That said, the latest development on negotiation front feed in the expectations of resolution soon.
- Going forward, the development on the supply chain front is likely to impact inflation, growth, currency, foreign flows and accordingly influence the policymakers (fiscal and monetary) responses.
- Apart from the crude prices and INR movement, the yields may likely to influence by development of monsoon front on back of El Nino concerns.
Common Source:
RBI, CSO, FAO, CEIC, NSO, US Federal Reserve, US Treasury department, Commerce Ministry of India, Finance
Ministry of India, Mospi, NIMF Internal Research.
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