How can debt funds shine past FM’s fiscal deficit target of 5.9% for FY24?

“To finance the fiscal deficit in 2023-24, net market borrowing from dated securities is estimated 11.8 lakh crores. The remaining funding is expected to come from small savings and other sources. Gross Market Borrowings Estimated 15.4 lakh crore,” the finance minister said in his budget speech.

According to Finance Minister Nirmala Sitharaman, the government intends to raise gross borrowing of 15.43 trillion rupees ($188.64 billion) by issuing bonds in 2023-2024, while maintaining a net borrowing of 11.80 trillion rupees. Following which the benchmark 10-year yield closed at 7.277% at 15:30 hrs IST after hitting a high of 7.416%.

Dhaval Dalal, CIO – Fixed Income, Edelweiss MF said, “The Finance Minister presented his 5th Union Budget today with a clear focus on capex-led growth while maintaining fiscal prudence. 33 per cent jump in capex. In FY24 10 trillion will create a multiplier effect on economic activity and support additional jobs. Higher allocation for Indian Railways will continue to modernize key infrastructure and heavy industries. 50-year interest-free loans to states linked to capex another year The expansion will help in infrastructure development. Market participants enjoyed the conservative estimates in the Union Budget, which did not have any fine print or hidden negatives. There was something positive for every section of the society. Individual tax slabs The nudges for expansion and the new tax regime are aimed at higher savings that can support personal consumption.”

“FY24 nominal GDP is estimated to grow at 10.5%, which is quite credible. The 11.5% growth in FY24 net tax receipts suggests a modest tax buoyancy. Fiscal deficit is expected to reduce by 50 bp to 5.9% of GDP by FY2026, with an aim to bring it down to 4.5% of GDP. The announcement was followed by a sharp recovery in the bond and equity markets. For the bond market, FY24 net borrowing of Rs. 11.8 trillion and gross borrowing of Rs. 15.4 trillion was at the lower end of market estimates. This should prevent benchmark bond yields from rising in our view. We expect the benchmark 10Y sovereign bond yield to trade between 7.25% and 7.5% in the near term,” said Dhaval Dalal.

Kaustubh Belapurkar, Director-Manager Research, Morningstar India said, “The lowering of the fiscal deficit estimate at 5.9% helps the market gain more confidence in the continued fiscal prudence. This allays concerns of significant upward pressure on bond yields.” Focus will shift back to RBI’s monetary policy. Overall a positive sign for bond market and debt mutual fund investors.”

Manish Jeloka, Co-Head, Products & Solutions, Sanctum Wealth said, “The Budget announced a fiscal deficit target of 5.9% for FY24 and gross borrowing lower than market expectation. The fiscal deficit was being closely watched by market participants as this was the last full budget before elections and the government may consider some populist measures during the budget. However, with a lower-than-expected fiscal deficit for FY24 and a fiscal consolidation glide path towards the fiscal deficit target of 4.5% of GDP by FY26, bond markets reacted positively. In response, the 10-year benchmark yield has declined by 7 bps.

Mr. Sandeep Bagla, CEO, Trust AMC said, “The budget has addressed the greatest need of the hour. 10 lakh crore spent on capital expenditure is encouraging for development. The borrowing numbers are in line with bond market expectations. Inflation has remained below RBI’s comfort zone, with US 10-year yields 90 bps below peak. I think a similar rally in Indian bonds is overdue. The budget itself was not negative for debt funds, but there is every chance of a good rally in bonds this year. We at Trust MF are very confident that the money will go into long term funds where the returns this year can be up to 9-10%.”

CA Manish P Hinger, Founder, Fintoo said, “The fiscal deficit number and the government’s borrowing line is in line which will have a positive impact on bond and debt mutual funds. On the path of fiscal consolidation where the focus is below 4.5% by 2025-26. Year The government is focusing on achieving 5.9% fiscal deficit for 2023-24. 11.8 lakh crore and the remaining 15.4 lakh crore to come from small savings and other sources. Investment demand is likely to remain strong and funds to increase FPIs may become buyers as real interest rate looks attractive and if inflation is under control then it is quite possible that Indian bond market may see a rally of 50-60 basis points. This will make bond market attractive for next one year can maintain.”