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