Please Share::
India Equity Research Reports, IPO and Stock NewsVisit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily28032012.pdf
Government to front-load borrowing. The Government is set to complete 65% of
its budgeted gross borrowings for FY2013 in 1HFY13, as the borrowing calendar
released yesterday pegged the gross issuance for the period at Rs3.7 tn. The size of the
weekly debt auction is Rs150-180 bn, and this huge debt supply is likely to weigh on
the bond market. Accordingly, we expect yields on the benchmark 10-year G-Sec to
edge higher to 8.70-8.75% in coming months, with the timing of the peak dependent
on the spacing and quantum of OMO operations.
1HFY13 borrowing nearly 50% higher on gross and net basis
In 1HFY13, the Central Government will borrow Rs3.7 tn on a gross basis, completing 65% of its
gross borrowing program for FY2013E. This is higher than the 60% of the budgeted borrowing
seen in FY2012. After taking into account redemptions during this time, net borrowing will be
Rs2.84 tn, which is nearly 50% higher than the net borrowing in FY2012. According to Finance
Secretary R Gopalan, the 1HFY13 borrowing is based on the Government’s higher cash
requirements to meet income-tax refunds, which tend to be bunched up in the initial months of a
financial year, as well as an assessment of the expected inflow and expenditure pattern.
Mr Gopalan added that the FY2013 borrowing could be lower than the Rs5.69 tn budgeted,
should there be a pick-up in inflows into small savings. Additionally, with Government sources in
the past week also indicating the possibility of the Government carrying forward cash (not
explicitly accounted for in the budget), the gross borrowing for FY2013 could be commensurately
lower.
Borrowing concentrated in the 10-14 year segment
According to a detailed borrowing calendar issued by the RBI, the size of weekly debt auctions is
Rs150-180 bn. This is much higher than the Rs110-120 bn of weekly auctions seen in 1HFY12 and
the Rs120-140 bn of weekly auctions in 4QFY12. The high weekly borrowing is despite the
borrowing program being spread over 24 weeks as an auction is scheduled for each week other
than the two weeks that coincide with advance-tax outflows (in June and September). It must be
noted that in previous years, it has generally been the norm to not schedule Government
borrowing in the week of monetary policy and advance-tax outflows. In terms of the term pattern
of the issuances, most is in the 10-14 year segment (39-46%). This is not surprising, given the high
redemption pressure over the next 5-10 years (see Exhibit 4).
Yields to edge higher to 8.70-8.75%
The yield on the 10-year benchmark (8.79%GS2021) ended yesterday at 8.50% as markets
remained jittery ahead of the 1HFY13 borrowing program announcement. In the near term, we
expect limited upside to yields as supply pressure is modest with Rs260 bn due for redemption in
early April and Rs330 bn in early May. However, in the following months as net supply pressure
increases, liquidity conditions remain tight and borrowing fatigue sets in, we expect bond yields to
edge higher. August is likely to be an exceptionally difficult month with the Government expected
to raise Rs750 bn. Given the huge borrowing program, the RBI will have to resort to OMO
operations to prevent disruptive movement in G-Sec yields and manage the domestic liquidity
situation. While we don’t expect the RBI to conduct OMOs at the onset of FY2013, the actual
timing of OMOs would depend on the need to ensure that Government borrowing proceeds
smoothly as well as the need to address structural liquidity requirements due to likely FX
intervention. Accordingly, we expect the yield on the 10-year benchmark to head to 8.70-8.75%
in 1HFY13 itself, with the timing of the peak dependent on the spacing and quantum of OMO
operations.
No comments:
Post a Comment