Morgan Stanley India Primary Dealer , which commenced operations early this week, aims to be amongst top five bond houses in terms of market share.
“Morgan Stanley is entering the Primary Dealership business for the long term. It has already has been active in government bonds (trading) for a year through Non Banking finance company,” said Ranodeb (Ronnie) Roy, head of interest rate, credit and currency (IRCC) division for Asia Pacific, said.
Its entry into this PD space coincides with large government borrowing program to fund huge fiscal deficit.
Asked about the business plans for new outfit, Roy said, “While we do not have a target for market share, it would be reasonable to say we would like to be among the top five players.”
He declined to elaborate on the capital base of the PD and when the bond house expects to breakeven.
According to Reserve Bank of India, PD system plays a significant role in the government securities market. The income earned by PDs declined by 33 per cent during 2007-08, mainly due to restructuring of business by PDs. Concomitantly however, their expenditure also declined sharply.
The net profit declined by 16 per cent during the year. However, the Capital adequacy ratio maintained by stand-alone PDs remained above the minimum requirement of 15 per cent.
The outfit will have over 12 people in our fixed income business team in India. We feel it is appropriately staffed for now”. Macro level research inputs will flow from our regional hub in Hong Kong. However, quantitative strategists will be based in India.
Roy said since the government borrowing program is front loaded in the first 6 months of the fiscal year, there could be pressure on the 5-10 years segment and the 10 year benchmark could see yield crossing 7 per cent.
The higher borrowing program 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 amongst banks in India as they continue to see robust deposit growth.
