Govt's first half borrowing programme set to dampen market sentiments

Govt borrowed Rs 3.7 lakh cr in first half of current fiscal, which was around 66% of total borrowing

The government's plan to borrow Rs 3.49 lakh crore in the first half (April-September) of next fiscal—which is about 60% of the total borrowing—is not likely to boosting sentiment move by the street.

This is because net supply of government bonds will continue to be high in the first quarter (April-June) of the next fiscal thus dampening bond market sentiments.

The government had borrowed Rs 3.7 lakh crore in the first half of the current fiscal, which was  around 66% of the total borrowing.

The gross market borrowing of the government through issue of government securities in 2013-14 is estimated to be Rs 5,79,000 crore compared with Rs 5,58,000 crore for the current fiscal. According to estimates, the Reserve Bank of India (RBI) may auction government bonds worth Rs 15,000 crore every week during the first half of the next fiscal.

The street is expecting a 25 basis points repo rate cut on Tuesday. However, government bond yields rose as there were uncertainties ahead of the borrowing programme details.

The yield on the 10-year benchmark government bond 8.15% 2022 ended at 7.88% compared with previous close of 7.86%.  

“Though there will be repo rate cuts, but at the same time there will government bond auctions in the first quarter in a scenario were there are lesser maturities. Due to this there are even chances of devolvements,” said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund.

Most of the bond maturities are scheduled in the period August-September.

“At a gross level the borrowing is lower than last fiscal. But given that most bond maturities were focused in the first quarter last fiscal compared with August-September period next fiscal, at a net level bond supply is still quite high. So this by itself do not provide a positive trigger to the market,” said Suyash Choudhary, head-fixed income, IDFC Mutual Fund.

The government is also planning to inflation-indexed bonds in the first half of the next fiscal. But the street do not seem to be very bullish about these bonds.

“There is Rs 12,000-20,000 crore worth of inflation-indexed bonds. One would have to see what is the market appetite is once the structure of these bonds are clear. If the market does not like the structure of these bonds, that would also weigh on sentiments. The lesser gross supply number is offset by the lesser maturities in the first quarter,” said  Choudhary.

However, before the government bond auctions start, at least for this month government bond yields may fall from current levels. “If the rate cut comes in on Tuesday then overall it is going to be very positive for government bonds,” said Arvind Chari, debt fund manager, Quantum Mutual Fund.