Budget 2024: Bonds slip after Modi govt leaves borrowing largely unchanged

By Ronojoy Mazumdar and Subhadip Sircar
 

Indian bonds declined after the government disappointed traders expecting a bigger cut in debt sales.
 

The administration plans to borrow Rs 14.01 trillion ($168 billion) in the fiscal year ending March 2025, Finance Minister Nirmala Sitharaman said Tuesday. That’s slightly lower than Rs 14.1 trillion estimated in a Bloomberg survey and proposed in the interim budget in February. 

New Delhi also forecast a narrower fiscal deficit of 4.9 per cent of gross domestic product, versus 5.1 per cent in the interim spending plan. This is the first budget from the government after Prime Minister Narendra Modi won a third term in elections last month. 

Bonds rallied initially on the lower fiscal deficit number, with the yield on the 10-year bond dropping by as much as four basis points to 6.93 per cent, the lowest since April 2022. They reversed gains after the finance minister announced a modest cut in borrowings. 

“The borrowing numbers have not changed much in spite of fiscal deficit being lower at 4.90 per cent, so yields are up,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund.

The 10-year yield rose two basis points to 6.98 per cent, while the 5-year yield was up one basis point at 6.94 per cent. The rupee hit a new all-time low of 83.6925 per dollar. 

Net borrowing, adjusted for maturities, will be Rs 11.63 trillion, compared with Rs 11.7 trillion median expectation in a Blomberg survey.

Traders were watching whether the federal government sticks to a path of fiscal prudence after Modi’s party lost majority in elections, and had to depend on allies to run the coalition government. 

Bonds have advanced in recent months amid accelerated foreign inflows following the inclusion of Indian sovereign notes in JPMorgan Chase & Co’s emerging-market index. Foreigners have snapped up about $12 billion worth of the notes since the September announcement.

“It is not that the market has got a negative surprise,” said Murthy Nagarajan, head of fixed income at Tata Asset Management. The fiscal deficit will be lower at 4.5 per cent the next year, which is good for long term, but the short term market positioning has been on the higher side,” he said.