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India Equity Research Reports, IPO and Stock News
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Economy
Fiscal Policy
Government borrowings announced higher. The Central Government announced
its borrowing program for 2HFY12E higher by Rs529 bn over the market expectations.
This, as the government explained, was due to lower-than-expected cash surplus at the
start of the fiscal and also on account of revenue shortfall under the small savings
scheme. Thus, it appears that funding sources for the budget deficit are moving away
from small savings and cash surplus to dated market borrowings. The higher
borrowings do not appear to be taking into account any slippages under the revenue
side or the expenditure side as official statements tended to indicate that the fiscal
deficit calculations remain unchanged.
Dated government borrowings announced higher than anticipated
The central government had borrowed Rs2.5 tn in 1HFY12 out of the announced dated borrowing
program for the year at Rs4.17 tn. Thus, the market was expecting the RBI to announce a dated
borrowing program of Rs1.67 tn for the 2HFY12E. However, the market was surprised with a
dated borrowing program of Rs2.2 tn, or around Rs529 bn in excess of the anticipated amount.
This higher borrowing program was however not on account of any anticipated fiscal slippage
(either from the revenue side or the expenditure side); as official statements tend to indicate that
the fiscal deficit calculations remain unchanged. As explained, the higher borrowings are due to
(1) revenue shortfall from small savings where the expectation is for a shortfall of Rs350 bn on
account of reallocation of small savings into bank deposits due to higher rates offered on deposits
and (2) lower cash surplus at the beginning of the year (now estimated at Rs160 bn which is
Rs170 bn lower the anticipated cash surplus of Rs330 bn). In other words, the higher dated
borrowing amount is just a change in the way of funding the fiscal gap.
Likely to have considered some buffer for fiscal slippage
While there is no explicit admission of a fiscal slippage, our anticipation is that some amount of
buffer has been maintained for likely ultimate slippages in tax collections, PSU disinvestments and
also higher expenditures due to slippages in the subsidy bill, especially oil. The trends indicate a
relatively sharp pick-up in the small savings collections closer to the end of the fiscal year. Thus,
while recent trends in small savings show an abysmal collection, it might not be right to assume
this trend to continue into the rest of the fiscal. In this sense, as the small savings collections might
be seen to improve closer to the end of the fiscal, this could ultimately serve as a buffer for
slippages in other areas, thereby preventing any further shocks to the market on account of even
higher borrowing numbers.
Nervousness in bond markets returns
10-year benchmark bond yields had been ranged at 8.28-8.35% recently. However, after the
higher borrowing program was announced, the 10-year benchmark yield shot up by around 10
bps to close at 8.44%. There could be further upside to the yields given that the calendar
announced borrowings for each week in 2HFY12E in the region of Rs120 bn to Rs150 bn, even as
redemptions of dated securities remain limited.
Moreover, we remain worried of the fiscal position and anticipate stress on the budgeted deficit
numbers out of slippages in the tax revenue receipts, disinvestments and higher subsidy payments.
In the event of the small savings not picking up towards the end of FY2012E, the government
might be forced to extend its dated borrowing program even higher. The disadvantage now would
be that the announced borrowing calendar already extends till the end of February; thereby
leaving little room for RBI to schedule additional borrowings. 10-year benchmark yields could now
be seen testing 8.65-8.75% in 2HFY12E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Fiscal Policy
Government borrowings announced higher. The Central Government announced
its borrowing program for 2HFY12E higher by Rs529 bn over the market expectations.
This, as the government explained, was due to lower-than-expected cash surplus at the
start of the fiscal and also on account of revenue shortfall under the small savings
scheme. Thus, it appears that funding sources for the budget deficit are moving away
from small savings and cash surplus to dated market borrowings. The higher
borrowings do not appear to be taking into account any slippages under the revenue
side or the expenditure side as official statements tended to indicate that the fiscal
deficit calculations remain unchanged.
Dated government borrowings announced higher than anticipated
The central government had borrowed Rs2.5 tn in 1HFY12 out of the announced dated borrowing
program for the year at Rs4.17 tn. Thus, the market was expecting the RBI to announce a dated
borrowing program of Rs1.67 tn for the 2HFY12E. However, the market was surprised with a
dated borrowing program of Rs2.2 tn, or around Rs529 bn in excess of the anticipated amount.
This higher borrowing program was however not on account of any anticipated fiscal slippage
(either from the revenue side or the expenditure side); as official statements tend to indicate that
the fiscal deficit calculations remain unchanged. As explained, the higher borrowings are due to
(1) revenue shortfall from small savings where the expectation is for a shortfall of Rs350 bn on
account of reallocation of small savings into bank deposits due to higher rates offered on deposits
and (2) lower cash surplus at the beginning of the year (now estimated at Rs160 bn which is
Rs170 bn lower the anticipated cash surplus of Rs330 bn). In other words, the higher dated
borrowing amount is just a change in the way of funding the fiscal gap.
Likely to have considered some buffer for fiscal slippage
While there is no explicit admission of a fiscal slippage, our anticipation is that some amount of
buffer has been maintained for likely ultimate slippages in tax collections, PSU disinvestments and
also higher expenditures due to slippages in the subsidy bill, especially oil. The trends indicate a
relatively sharp pick-up in the small savings collections closer to the end of the fiscal year. Thus,
while recent trends in small savings show an abysmal collection, it might not be right to assume
this trend to continue into the rest of the fiscal. In this sense, as the small savings collections might
be seen to improve closer to the end of the fiscal, this could ultimately serve as a buffer for
slippages in other areas, thereby preventing any further shocks to the market on account of even
higher borrowing numbers.
Nervousness in bond markets returns
10-year benchmark bond yields had been ranged at 8.28-8.35% recently. However, after the
higher borrowing program was announced, the 10-year benchmark yield shot up by around 10
bps to close at 8.44%. There could be further upside to the yields given that the calendar
announced borrowings for each week in 2HFY12E in the region of Rs120 bn to Rs150 bn, even as
redemptions of dated securities remain limited.
Moreover, we remain worried of the fiscal position and anticipate stress on the budgeted deficit
numbers out of slippages in the tax revenue receipts, disinvestments and higher subsidy payments.
In the event of the small savings not picking up towards the end of FY2012E, the government
might be forced to extend its dated borrowing program even higher. The disadvantage now would
be that the announced borrowing calendar already extends till the end of February; thereby
leaving little room for RBI to schedule additional borrowings. 10-year benchmark yields could now
be seen testing 8.65-8.75% in 2HFY12E.
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