Lower H1 Borrowing Plan of Government of India: Angel Broking

Views of Mr. Jaikishan J Parmar (Research Analyst, Angel Broking):

On Monday 26th March 2018, the government of India announced a sharply lower borrowing plan for the first half of fiscal year 2018-19 at Rs.288,000 crore which accounts for nearly 48% of the full year borrowing. However, compared to the first half of fiscal year 2017-18 borrowing of Rs.372,000 crore the current year borrowing target for first half is sharply lower. Not surprisingly, the decision of the government led to a sharp fall in bond yields by 20 basis points, giving some respite to bond prices.

Prior to the announcement, the Ministry of Finance officials had met with bond traders and primary dealer to gauge the appetite for the government borrowing program. While the appetite from banks was lower due to reduced SLR, appetite from debt funds was also likely to be lower due to MTM losses on existing positions. Foreign investors will be keener to gauge the Fed rate action before committing to bond buying in India. This led to a reduced borrowing target for H1. In fact, apart from the reduced borrowing target, the government has brought down the average borrowing tenure to make the bonds more attractive.

However, the lower borrowings are likely result in a lot of hidden borrowings to bridge the fiscal deficit. For example, the government will withdraw Rs.100,000 crore from the National Small Savings Fund (NSSF), 33% higher than last year. Also, cross holdings of PSU stakes will be funded by company borrowings. Whether the government plans to increase the FPI limits in government debt this year is still not clear and that could be one of the ways to build appetite for government paper."

Source : Equity Bulls

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