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Gambhir sees shorter-term bonds as more attractive as the yield curve is flat, with hardly any difference between the yield on the 1-year and longer-duration securities. (Photo: Shutterstock)
India may cut its current year’s gross market borrowings in the final budget next week following a better-than-estimated surplus transfer from the central bank and amid strong revenue collections, the treasury head at Axis Bank said.
“Revenue receipts and capital receipts, (and) especially the central bank dividend, have been much higher than what was estimated in the February budget,” Neeraj Gambhir, group executive and head – treasury, markets and wholesale banking products, told Reuters on Monday.
Accordingly, the final budget could see the gross borrowing for the financial year 2024-25 come down by Rs 50,00-75,000 crore ($6-9 billion), Gambhir added.
He sees room for a 20-basis-point reduction in the deficit target after the Reserve Bank of India (RBI) transferred a record surplus of Rs 2.11 trillion, more than double of what was budgeted. The deficit for the previous year stood at 5.6 per cent.
In the interim budget, the government announced a gross borrowing of Rs 14.13 trillion, with a fiscal deficit target of 5.1 per cent of the gross domestic product (GDP). The final budget will be tabled on July 23.
If the government cuts supply by more than Rs 50,000 crore, the benchmark yield could drop to over two-year lows, testing 6.85 per cent-6.90 per cent levels, from around 7 per cent currently, the treasurer added.
Gambhir, however, does not expect the RBI to begin cutting interest rates this financial year, assuming an improvement in growth estimates, and as he sees headline inflation remaining above the central bank’s 4 per cent target.
“We could see some possibility of cuts next year if the Federal Reserve cuts (interest rates) by September or December,” he added.
Gambhir sees shorter-term bonds as more attractive as the yield curve is flat, with hardly any difference between the yield on the 1-year and longer-duration securities.
“The rate hiking cycle is over, and the next step would be a cut, and with this kind of a flat yield curve, we should see some sort of steepening as markets start pricing in rate cuts.
Therefore, the front-end of the yield curve, say, up to five years presents good value.”
First Published: Jul 15 2024 | 1:04 PM IS