Union Bank Sees Long-Term Gilts Benefiting from Rating Upgrade, GST Reforms

S&P Global Ratings’ upgrade of India’s sovereign credit rating to BBB from BBB- and the government’s proposed goods and services tax reforms bode well for long-tenure bonds, Union Bank of India’s research team said in a note.

The bank said long-duration gilts offer a better risk-reward than short-term papers, with easing inflation, the Reserve Bank of India having already cut 100 basis points in repo rate this year, and a further 25–50 bps reduction still possible. Clear signals from the Centre on borrowing discipline and no supply glut also support a favourable duration bias, it added.

Prime Minister Narendra Modi last week said GST reforms would be rolled out by Diwali, lowering taxes on daily-use goods to ease inflation and support small businesses. Union Bank said the overhaul could reduce price pressures for consumers, and any fiscal impact may be cushioned by higher allocations to the compensation cess fund in 2025-26.

The bank recommended gradually increasing exposure to gilts maturing in 10 years and above, and said it will re-evaluate after more clarity emerges on the final GST changes.