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Informist, Tuesday, Jul 23, 2024

By Vaishali Tyagi and Sachi Pandey

MUMBAI – With a larger-than-expected downward revision in the fiscal deficit target, and a token reduction in market borrowing, the Union Budget for 2024-25 (Apr-Mar) was viewed as a positive for the debt market. Despite this, yields on corporate bonds remained largely unaffected, dealers said. 

"This budget was well-balanced and a positive budget, lowering the fiscal deficit for the current year, and for the next year as well a roadmap has been laid down which is a welcome step from the sovereign rating perspective. For the government dated securities, there was no meaningful reduction, hence, the market didn't react today," said Abhishek Bisen, fixed income head at Kotak Mutual Fund. "On the corporate bond end, the budget was a non-event."

Finance Minister Nirmala Sitharaman, while presenting the Union Budget, said that the fiscal deficit for 2024-25 is pegged at 4.9% of GDP as against 5.1% projected in the Interim Budget. The government also revised its gross borrowing for the year to 14.01 trln rupees from the interim budget projection of 14.13 trln rupees.

Market participants had already factored in a lower fiscal deficit following a larger-than-budgeted surplus transfer by the Reserve Bank of India to the government, resulting in almost negligible immediate impact on corporate bond yields across tenures. "This year's budget was more or less on expected lines. Therefore, there was no surprise element that could have triggered a significant change in the yields," a dealer at a mid-sized brokerage said. 

Market participants expect yields to be driven by demand-supply dynamics of the market in the near term. The market activity remained subdued, with deals worth only 46.92 bln rupees recorded on the National Stock Exchange and BSE combined, compared with 78.24 bln rupees on Monday. Only mutual funds and banks actively bought and sold papers. 

None of the Ujjwal DISCOM Assurance Yojana bonds were traded in the secondary market today, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed.

Bonds issued by Hella Infra Market, LIC Housing Finance, Navi Finserv, Muthoot Finance, Uttar Pradesh Power Corp, Spandana Sphoorty Financial, and Kerala Infrastructure Investment Fund Board were traded the most across tenures today.

The primary market also slowed down on the day of the budget presentation, with market participants taking their time to digest the various announcements which contained no immediate takeaways for the market. Today, only Shriram Finance tapped the market to raise 1 bln rupees through the re-issuance of 10-year bond at a yield of 9.10%. On Monday, deals worth over 99 bln rupees were recorded in the primary market.

On Wednesday, frequent issuer National Bank for agriculture and Rural Development invited bids to raise up to 50 bln rupees through the re-issuance of bond maturing on Sep 30, 2027. Delhi International Airport will also tap the market to raise 25.13 bln rupees through bonds maturing in 10 years.

Cholamandalam Investment and Finance will seek bids to raise 5 bln rupees through three-year bonds and Godrej Finance plans to raise 2.5 bln rupees through bonds maturing on Nov 25, 2027.

While market players did not take any major cues from the Union Budget today, they expect improved supply of corporate bonds in the primary market this financial year.

"For the corporate bond market, the structural thing is demand-supply dynamics. Demand has been growing since AUM (assets under management) of insurance, EPFO (employee provident fund organisation), etc are growing at a faster rate, but supply is still moderate”, said Soumyajit Niyogi, director, core analytical group at India Ratings and Research. "After the election and Union budget, now as the uncertainty is over we will see some traction in the corporate bonds issuances."

Merchant bankers believe that public sector entities, banks, non-banking financial companies and municipal corporations will now start lining up their bond issuances.

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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