Indian Government Set to Reveal Market Borrowing Strategy for H2 Fiscal Year

Indian Government Set to Reveal Market Borrowing Strategy for H2 Fiscal Year

The Indian government is expected to unveil its market borrowing plan for the period of October through March, according to two sources familiar with the matter. This announcement is anticipated on Thursday, with investors looking for an increased supply of longer-dated bonds.

For the current fiscal year running from April to March, the government has outlined a gross borrowing target of 14.01 trillion rupees (approximately $167.61 billion), leaving around 6.61 trillion rupees to be raised in the final six months. While there are expectations of a potential reduction in the remaining borrowing amount, most analysts believe that the government will adhere to its budgeted figures.

"The market has not entirely abandoned hopes for a reduction in the borrowing program, but such a decision may come later in December or January. A cut in borrowing would be particularly beneficial for longer-term bonds," stated A Prasanna, head of research at ICICI Securities Primary Dealership.

Investors are keenly observing the government’s stance on shorter-tenor treasury bills, especially after it canceled two such auctions earlier this month—a move that was unprecedented. Despite this, there remains a strong demand for longer-dated securities, particularly as yields have significantly decreased, resulting in borrowing costs for these instruments reaching near three-year lows.

Notably, nearly 40% of the government’s borrowing from April to September was conducted through longer-end papers. Demand from Indian insurance companies and pension funds has driven the yield on 50-year bonds below 7% for the first time in history. Meanwhile, the yield on 30-year bonds has dropped by 50 basis points so far this year.

These institutions typically allocate a large portion of their portfolios to long-term government bonds to ensure they have sufficient liquidity for future payouts, thus creating sustained demand for such securities. A trader representing a major pension fund commented, "We participate in every auction with a demand of 10-15 billion rupees, and regardless of the yields, we need to acquire long-term papers for our product mix."

The insights from these sources indicate that the government's upcoming borrowing strategy will be closely watched, as it holds significant implications for market dynamics and investor sentiment moving forward.