Reliance Traders Said to Game Plan in Case RBI Raises Rates

e0e{e(vm1h)bnrr95scmtduw_media_dl_1.png Bloomberg

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(Bloomberg) — Traders in Reliance Industries Ltd.’s treasury department are strategizing over where to park the company’s cash in case the Reserve Bank of India starts raising interest rates in the coming months.

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One proposal involves moving Reliance’s cash holdings from liquid mutual funds into short-dated money market instruments, people aware of the conglomerate’s thinking said. 

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The switch may pay off because the yield spread between money-market papers and the benchmark rate has widened beyond its five-year average and is likely to narrow in the coming months, resulting in capital gains, the people said, asking not to be named as the information is private. Markets are currently expecting about 50 basis points of rate hikes this year, they said.

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Traders also mulled reducing allocation to longer-dated bonds, which tend to be more sensitive to interest-rate changes, the people said.

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The strategy discussion cited market expectations and the conglomerate didn’t take an explicit view on interest rates. Treasury departments typically consider a range of market scenarios when evaluating trading strategies.

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“We categorically deny the information you have provided in your email regarding our opinion on interest rates and the behaviour of the rupee,” a Reliance spokesperson said by email.

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The view carries weight because Reliance runs one of the largest corporate treasuries in India. The discussion also come ahead of the Reserve Bank of India’s rate decision on Friday, where the central bank is expected to announce measures to support the rupee.

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While most economists  — 29 out of 35 — surveyed by Bloomberg News expect the authority to keep the benchmark rate unchanged, they see the RBI adopting a hawkish stance to prepare markets for potential rate hikes later this year amid inflation pressures triggered by an oil price shock.

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India’s sovereign bond yields have remained broadly stable this quarter even as the rupee has slid to record lows. The currency has recovered in recent days, helped by RBI intervention and optimism that a US and Iran agreement may lead to the reopening of the Strait of Hormuz, a vital route for the country’s energy imports.

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The rupee is down 6% this year and recently approached a record low of 97 per dollar. It has been hovering around 95-96 levels in recent days.

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Reliance’s traders expect the rupee to strengthen if a Middle East peace deal is reached and if the RBI takes measures to attract capital inflows, one of the people said. They have proposed that the owner of world’s largest oil-refining complex partly hedge its long-term forward contract positions as well as coupon payments dues in fiscal year starting March 2028, the person said.

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