The government’s decision to lower its gross borrowings for FY25 has opened up a window of opportunity for corporate houses looking to raise capital at competitive rates. Corporate bonds, which are a debt instrument, will now seem attractive to India Inc, sector experts said, as the Centre, which is an active market participant in the bond market, steps back in FY25.
On Thursday, Union finance minister Nirmala Sitharaman pegged the gross and net market borrowing at Rs 14.13 trillion and Rs 11.75 trillion, respectively, for FY25, as she presented her interim Budget. The planned borrowing for FY25 is lower than the FY24 gross target (of Rs 15.43 trillion) by 8.42%.
The announcement sent yields on the benchmark 10-year bond down by as much as 8 basis points to 7.06%, Bloomberg data showed. Sitharaman herself indicated in her Budget speech on Thursday that the government’s borrowing scale-back would bring more capital to the table for the private sector. “The lower borrowings by the Centre will facilitate larger availability of credit for the private sector,” she said.
The chief beneficiaries, experts said, would be capital-intensive sectors such as energy, infrastructure, steel, metals and power. R Shankar Raman, chief financial officer, Larsen & Toubro (L&T), the country’s largest infrastructure company, said, “This is a good development for bond markets.
Falling yields will benefit well-rated corporates and to some extent reduce the dependence on institutional funding. With the RBI yet to indicate rate cuts, corporate bonds could provide an attractive investment opportunity for markets.”
Sanjay Dutt, MD & CEO, Tata Realty and Infrastructure, said, “We expect the cost of borrowings to come down for the private sector. G-Sec yields have already been corrected by 10 basis points after the interim Budget. While there may not be a significant impact on bond yields in the immediate term, over the medium term, we expect the cost of borrowings for the private sector to reduce due to multiple factors.”
For perspective, Indian firms raised close to Rs 11 trillion in CY23 by issuing rupee bonds, Bloomberg data shows. This number could go up by at least 10-15%, experts said, as the bond market appears attractive to Indian companies following the Budget announcement.
Rajiv Agarwal, MD & CEO, Essar Ports, said, “The government has bettered the fiscal deficit numbers for the current year and the projection for next year is 5.1%. Government borrowings are going to be much less, resulting in a reduction in bond yields and lower cost of money for the private sector.”
Sanjay Gupta, chairman and MD, APL Apollo Tubes, said that access to funds at favourable rates would create new growth and investment prospects for companies. “Reducing government borrowing signals a positive shift as funds will be available to the private sector at lower rates. We see this as a promising move as it aligns with our long-term commitment towards infrastructure development,” he said.