India Markets Monthly: Bonds Have Stopped Hedging Equities
October 2026 sample desk note on rates, FX, flows and external funding
- Domain
- Macro & Markets
- Kind
- Illustrative work sample
- Length
- 14 pp · 0.5 MB
What it found
- 0.07 to 0.45
- Nifty and G-sec return correlation, 2025 to 2026
- $136.4 bn
- raised by the RBI swap window, over three times the desk's deficit estimate
- 1.0% / 1.5%
- FY27 current account deficit, desk against IMF
Swap window, to 31 Aug
$136.4 bn
Desk downside deficit
$74.1 bn
IMF deficit, 1.5% of GDP
$60.9 bn
Desk base deficit
$42.0 bn
2013 FCNR(B) window
$26.0 bn
What the RBI's swap window raised to 31 August against the FY27 deficit it has to fund, in US$ bn. The window covers even the desk's downside, which is why the note calls the balance of payments funded, and it does so with borrowed dollars that come due from 2029.
Source: Finding 4; the report's slide 11, from RBI and IMF data
Overview
A sample monthly note, written from public data as a bank research desk would write it: Indian bonds have stopped cushioning falls in equities. The correlation of daily returns between the Nifty 50 and the 10 year G-sec index is 0.45 this year against 0.07 in 2025, and the bond index fell on all 5 days since July when the Nifty fell more than 1%. The note covers rates, FX, flows and the balance of payments, sets three oil-led scenarios to March 2027 and ends with five dated range calls for 30 November. The bank is illustrative and the desk forecasts are marked as drafts; not investment research or advice.
Findings
Bonds no longer cushion falls in equities. Across the 5 falls since July the Nifty 50 averaged -1.64% a day and the G-sec index -0.41%
The deficit is an oil bill. Outside oil India earns a current account surplus of about $95 bn a year, and each $10 on Brent adds about $14.7 bn. The desk sees 1.0% of GDP for FY27 against the IMF's 1.5%
The RBI is tightening with the rate and with liquidity. The repo rate rose 25 bps to 5.50% on 7 October. The desk expects one more hike, to 5.75% in December, while one year OIS at 6.25% prices more
The balance of payments is funded with borrowed dollars. The swap window's $136.4 bn compares with a base deficit of $42.0 bn, a downside of $74.1 bn, the IMF's $60.9 bn and the 2013 window's $26.0 bn. Net forward sales reached $200.1 bn, 27% of reserves, with repayments running from 2029 to 2031
Oil decides the path to March 2027. Base 55%, upside 20%, downside 25% puts USD/INR at 97.5, 94.5 and 101.5 and the 10 year G-sec at 7.25%, 6.85% and 7.85%