Informist, Thursday, Feb 1, 2024
By Sachi Pandey and Subhana Shaikh
MUMBAI – Market participants who were expecting the Interim Budget for 2024-25 (Apr-Mar) to be a ‘non-event’ were taken by surprise today as Finance Minister Nirmala Sitharaman announced a lower-than-expected fiscal consolidation road map and gross market borrowings for the next financial year, dealers said.
Following these announcements, the debt market cheered, leading to a fall in long-term bond yields of government securities and, consequently, corporate bonds, dealers said. Yields on corporate bonds maturing in five years and 10 years slipped by 5-7 basis points, tracking a rally in government bond yields, dealers said. However, yields of those maturing in three years saw a marginal decline owing to limited activity. The yield on the benchmark 10-year government bond fell to the lowest level since Jun 19. Yields on government bond ended at 7.0583% today, compared to 7.1442% on Wednesday.
The Interim Budget today pegged the gross market borrowing in 2024-25 at 14.13 trln rupees through sale of dated securities, against the estimate of 15.20 trln rupees, as per a poll by Informist. On a net basis, the government pegged market borrowing at 11.75 trln rupees. The net supply for 2024-25 was seen at 11.65 trln rupees.
The government projected a fiscal deficit of 5.1% of GDP for the next financial year starting April, below the consensus estimate of 5.3% polled by Informist. It also lowered the target for 2023-24 to 5.8% of GDP from 5.9% estimated earlier. “A faster than anticipated pace of fiscal consolidation and gross borrowings being lower than market estimates have been the positive features of the Budget from a bond market perspective,” said Rajeev Radhakrishnan, chief investment officer of fixed income at SBI Mutual Fund.
Long-term investors such as insurance companies remained on the buying side in the secondary market, while large-sized private sector banks were said to have been selling those bonds, dealers said, adding that mutual funds were also highly active. The majority of the activity was seen on the longer-end of the curve, while the shorter-end remained largely flat.
Bonds that exchanged hands on the bourses included those by REC, National Bank for Financing Infrastructure and Development, Bharat Sanchar Nigam, Power Finance Corp, HDFC Bank, Mahanagar Telephone Nigam, National Bank for Agriculture and Rural Development, Bajaj Finance, Tata Capital Financial Services, Godrej Properties, Small Industries Development, Bank of India, National Housing Bank, Muthoot Finance, and ICICI Home Finance Co.
“If increased confidence in the fiscal discipline stimulates overall market sentiment, it could indeed percolate into corporate bonds, potentially leading to a rally in that segment,” Venkatakrishnan Srinivasan, a bond market veteran and founder of Rockfort Fincap, said.
While today’s Interim Budget was positive for the gilts market, it will also have a positive impact on corporate bonds, leading to a crowding in effect in the market. “By extension, gross and net borrowings are much lower than FY24 (2023-24), providing significant relief to the domestic debt markets, which will help keep a lid on the cost of borrowing and crowd-in the private sector,” Radhika Rao, executive director and senior economist at DBS Bank, said.
On the primary market front, merchant bankers believe that private companies, banks, non-banking financial companies and municipal corporations will now start lining up their bond issuances to complete their borrowing targets as we head towards the end of the financial year.
“The borrowing has to pick up, you will see a lot of issuances happening, because there will be clear arbitrage in the bank-loan and bond borrowings,” a debt capital market vice president at a mid-sized brokerage firm said.
On Friday, Nomura Capital India and G R Infraprojects will tap the primary market to raise up to 2 bln rupees cumulatively through short-term bonds.
Today, deals worth 143.95 bln rupees were recorded on the BSE and the National Stock Exchange combined, as compared to 110.83 bln rupees on Wednesday.
UDAY BONDS
In the secondary market, Ujwal DISCOM Assurance Yojana bonds worth 250.30 mln rupees were traded at a weighted average yield of 7.2509-7.6906%, according to data from the Reserve Bank of India’s Negotiated Dealing System-Order Matching Segment.
* 150.0 mln rupees of Rajasthan’s June 2025 bonds were traded at 7.5992%
* 48.50 mln rupees of Haryana’s March 2026 bonds were traded at 7.5687%
* 39.80 mln rupees of Chhattisgarh’s March 2024 bonds were traded at 7.2509%
* 12.00 mln rupees of Tamil Nadu’s February 2032 bonds were traded at 7.6906%
BENCHMARK LEVELS FOR CORPORATE BONDS:
End
Edited by Namrata Rao
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