Some reports had also indicated that government borrowing may remain light in April and had led to some amount of optimism getting built in the market on Tuesday.
After the announcement of the first half borrowing calendar by the government on Tuesday, bond market experts say there could be some amount of disappointment in the market as market participants were expecting much more clarity in terms of the potential additional borrowing in the context of the COVID-19 crisis and the subsequent economic slowdown.
Vijay Sharma, senior executive vice-president at PNB Gilts, believes the key takeaway is the fact that the government has not given much clarification on how it intends to do the potential increase in FY21 borrowing. “Under the current circumstances, the government will have to borrow more and the market will really like to know whether the RBI will take care of any additional borrowing it does. The good thing is that secretary did not rule out private placement with RBI by saying that this is not built in the current borrowing programme. I would read it as if this is a possibility that for extra borrowing, this option is still open,” Sharma said.
Some reports had also indicated that government borrowing may remain light in April and had led to some amount of optimism getting built in the market on Tuesday. The benchmark yield closed 7 basis points lower at 6.14% on Tuesday. Dealers said the optimism was dashed post the release of the H1 borrowing calendar and this could lead to some sort of short-term disappointment in the market. As per the calendar, the government is set to borrow Rs 79,000 crore in the month of April till May 1.
Ananth Narayan, professor of finance at SPJIMR, told FE that worries regarding tax collections and possible higher borrowing than estimated may still be a cause of concern. “In the current context, the government will have to spend more in FY21. Moreover, tax collections are also likely to be lower than anticipated. As a result, the bond market will definitely worry about what will happen with the additional borrowing that may hit the market later,” Narayan said.
Experts say that the Reserve Bank of India (RBI) will definitely have to step in later with open market operation (OMO) purchases throughout the year to absorb any excess supply that hits the market.