Budget Expectation- Bond Market: Mr. Pankaj Pathak, Fund Manager (Fixed Income), Quantum AMC

25 Jan 2024 , 03:23 AM

The interim union budget for 2024-25 will be presented on February 1, 2024. As has been the custom, the government may not announce any major policy changes in the interim budget ahead of Union elections. So, the key focus area from the market’s perspective, would be the government’s fiscal deficit target and market borrowing numbers.

Given the Indian economy is showing steady growth trend, the government will likely continue with the fiscal consolidation plan to bring down the fiscal deficit to 4.5% of GDP by FY 2025-26. Based on this glide path, for the FY 2024-25, fiscal deficit target should be around 5.3% of GDP.

Government’s borrowings from the bond market in FY25 might be lower than last year by around Rs. 500-700 billion. We expect the gross market borrowing of around Rs. 14.8 trillion and net market borrowing around 11.2 trillion in FY25.

Lower market borrowing from the government coupled with rising demand from long term investors like PF, pension and insurance companies makes the demand supply balance favorable for government bonds. Demand for bonds will also be boosted by India’s inclusion in the global bond indices. We expect demand for bonds to outpace its supply in 2024. Thus, bond yields will likely go down and bond prices move higher. Since longer term bonds are more sensitive to yield changes, we expect long term bonds to perform better in 2024