A widening in India USD credit spreads was seen this week in contrast to regional credit stability, with our India DACS index having risen by around 6bps. It coincided with elevated credit and equity sell-offs for an Indian conglomeratetargeted by a short seller, which led the company to pull its fully subscribed equity offering on Wednesday. Stock prices of its related companies have continued to fall since. While we see such volatility as an isolated risk related to company governance, it may have chilled inflows into the Indian USD credit market, on top of valuations being rich.
Beyond negativity from the sentiment channel, systemic risk is likely to be marginal. The RBI has requested Indian banks to report their exposure to the conglomerate, but this is part of regulatory monitoring and does not signify excessive worries. Over the week, a number of Indian lenders have also publicly stated that their exposure to the conglomerate is small relative to their loan book. We could see Indian HY credit underperforming amid headline negativity, but a deeper contagion for the credit market is not likely.
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