Reuters Market Eye - Barclays advises investors to buy inflation-linked bonds at the 10-billion rupee sale on Wednesday, estimating the bonds offer an annualised 19.3 percent return.
Linkers should see better demand at auction given attractive carry, but absence of local appetite and past lacklustre demand will ensure yields should not tighten in the secondary market, the note says.
Barclays recommends bidding at the current real yield of about 3.40 percent.
The rise in food prices increases the risks that inflation expectations could remain high, which implies elevated near-term carry for inflation-linked bonds, it says.
(Reporting by Subhadip Sircar)