India: H1 FY2015 borrowi ng scheduled to rise 10 % YoY to INR 3.7 tn

  • The Government is scheduled to borrow INR 3.68 tn on a gross basis in H1 FY2015, leading to a net borrowing of INR 2.93 tn
  • Individual auction size is higher in Q1 vs Q2 to cater to the heavy debt redemption of INR 750 bn, while months of July and August would be painful given the high net borrowing
  • Bond yields likely to witness upward pressure at the start of FY2015, however upside capped on eased inflation pressures

According to H1 FY2015 borrowing calend ar released today, the Government is scheduled to borrow 62% of its gross requirement (of ₹ 5970 bn) in the first half, similar to the current fiscal. In absolute terms, the gross borrowing in H1 FY2015 is ` 3680 bn and net borrowing is ₹ 2930 bn. The Government will also co nduct a debt switch worth ` 500 bn which involves issuance of longer dated securities in exchange for part of securities maturing in FY2016 ( ₹ 1820 bn) and FY2017 ( ₹ 2310 bn). Further, a Gsec buyback would also be considered to further curb redemption pressures. With the borrowing requirements anno unced in the Interim Budget, markets would await final fiscal numbers from the new Government post elections.

 

Key highlights:

  • The Government is scheduled to borrow ₹ 3.68 tn on a gross basis, resulting in a net borrowing of 2.93 tn in H1 FY2014.
  • Compared to H1 FY2014, gross borrowin g in H1 FY2015 is expected to be higher by ₹ 330 bn.
  • Compared to H1 FY2014, net borrowing in H1 FY2014 is expected to be higher by ₹ 326 bn.
  • Individual auction size is higher in Q1 as compared to Q2 FY2015. The average auction size in Q1 is ~INR 160 bn, with two auctions worth ₹ 200 bn scheduled to cater to heavy debt redemption of ₹ 750 bn. Meanwhile, the average auction size reduces to ₹ 140-150 bn in Q2 FY2015.
  • As expected, bulk of the issuance (around 40% - 46%) would be in the 10Y-14Y bracket. Moreover, the share in gross issuance at the shorter end (5-9 years) is likely to be reduced compared to in FY2014 (see table on the next page for details).
  • Auctions are spread over 24 weeks during the period April to September.
  • From a strategic perspective, month of July and August could prove to be painful for the bond market as net issuance during the month is significant

 

Bond market outlook


With the start of the next fiscal, the in creased weekly supply pressure is likely to weigh on gilts, with the benchmark yi eld likely to cross the 9% threshold. However, the upside to remain capped amid eased inflation pressures in the economy which is likely to lead the RBI to maintain status quo on rates. The markets would track the election outcome and more importantly, the monsoons that would primarily determine the CPI inflation trajectory. The markets would also keep track of the core CPI trajectory.