Morgan Stanley India Primary Dealer Pvt Ltd, which commenced operations early this week, aims to be among the top five bond houses in terms of market share.
“Morgan Stanley is entering the primary dealership business for the long term. It already has been active in government bonds (trading) for a year through a non-banking finance company,” said Ranodeb (Ronnie) Roy, head of interest rate, credit and currency (IRCC) division for Asia-Pacific, said. Morgan’s entry into the PD space coincides with the government’s large borrowing programme to fund huge fiscal deficit.
Asked about the business plan of the new outfit, Roy said, “While we do not have a target for market share, it would be reasonable to say that we would like to be among the top five players.”
He declined to elaborate on the capital base of the new venture and a timeframe for its breaking even.
According to the Reserve Bank of India (RBI), PDs plays a significant role in the government securities market. Income earned by PDs declined by 33 per cent during 2007-08, mainly due to restructuring of their business.
However, their expenditure also declined sharply. Their net profit declined by 16 per cent during the year.
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However, capital adequacy ratio of standalone PDs remained above the minimum requirement of 15 per cent.
“The outfit will have over 12 people in the fixed income business team in India. We feel it is appropriately staffed for now,” Roy said.
Macro-level research inputs would come from our regional hub in Hong Kong, but quantitative strategists would be based in India, he added.
Roy said since the government borrowing programme was front-loaded in the first 6 months of the current financial year, there could be pressure on the 5-10 years segment and the 10-year benchmark could see its yield crossing 7 per cent.
The higher borrowing programme may add to the steepness of the yield curve in the 5-10 year segment. However, with easy monetary policy, there will be enough demand for government bonds among banks in India as they continue to see a robust deposit growth.