Street not upbeat about govt borrowing in H1 FY14

Rs 3.7 lakh crore borrowed in the first half of the current financial year

Even as the government plans to borrow Rs 3.49 lakh crore - about 60 per cent of the total borrowing - in the first half (April-September) of FY14, it is unlikely to boost market sentiment. This is because the net supply of government bonds will continue to be high in the first quarter (April-June) of FY14. During the first half of FY13, the government had borrowed Rs 3.7 lakh crore - around 66 per cent of the total borrowing for the financial year.

The government's gross market borrowing through government securities in FY14 is estimated to be Rs 5.79 lakh crore, compared with Rs 5.58 lakh crore for FY13. According to estimates, the Reserve Bank of India (RBI) may auction government bonds worth Rs 15,000 crore every week during the April-September 2013 period.

The Street is expecting a 25-basis-point repo rate cut tomorrow. 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 per cent 2022 ended at 7.88 per cent, compared with the previous close of 7.86 per cent.

Most of the bond maturities are scheduled in the August-September period. "At a gross level, the borrowing is lower than last financial year (FY13). But given that most bond maturities were focused in the first quarter last financial year, compared with August-September of the next financial year, at a net level, bond supply is still quite high. So this by itself does not provide a positive trigger to the market," said Suyash Choudhary, head-fixed income, IDFC Mutual Fund.

The government is also planning inflation-indexed bonds in the first half of the next financial year. However, the Street does not seem to be very bullish about these bonds.

"Rs 12,000-20,000 crore worth of inflation-indexed bonds are there. One would have to see what 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, yields might fall from current levels, at least for this month.

"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.
BORROWING BROCHURE

• The government's gross market borrowing through government securities in FY14 is estimated to be Rs 5.79 lakh crore
• The amount was Rs 5.58 lakh crore in FY13
• The government plans to borrow Rs 3.49 lakh crore in the first half of the next financial year