India Budget Positive for Debt Market: Experts

New Delhi, Feb 1 (PTI) Finance Minister Nirmala Sitharaman aims to reduce fiscal deficit to 5.1 per cent of gross domestic product (GDP) for FY25 is distinctly positive for the debt market, mutual fund houses said on Thursday.

Continuing on the fiscally prudent path, Sitharaman in the interim Budget refrained from announcing populist measures, which will help it trim the fiscal deficit to 5.1 per cent of the GDP next fiscal and 4.5 per cent in FY26.

The interim Budget is only a vote-on-account, a procedural necessity pending elections. She said that the fiscal deficit for 2024-25 is estimated at 5.1 per cent of GDP against 5.8 per cent in the current financial year.

Terming the interim Budget judicious, Vetri Subramaniam, Chief Investment Officer, UTI AMC said that the degree of fiscal consolidation with a target of 5.1 per cent in FY25 is more than anticipated and is positive for softening of bond yields.

Further, the reiteration of the fiscal target for FY26 gives the bond market medium-term visibility. The consolidation impacts expenditure including capex by the government, he added.

"The finance ministry is clearly aiming for a rating upgrade with an aggressive fiscal deficit reduction target as we are at investment grade rating. The ten-year yield has come down to 7.05 to 7.08 levels from 7.15 levels. A further drop in yields is expected due to flows from foreign institutional investors and expectation of India's rating upgrade," Murthy Nagarajan, Head-Fixed Income, Tata Asset Management, said.

To meet the fiscal deficit, the gap between revenue receipt and expenditure, the government raises funds by issuing bonds in the market.

The gross and net market borrowings through dated securities during 2024-25 are estimated at Rs 14.13 lakh and Rs 11.75 lakh crore respectively. Both will be less than that in 2023-24.

Anurag Mittal, Head of Fixed Income, UTI AMC said that the budget is distinctly positive for the fixed income market. The budget continued its push on public capex while balancing fiscal responsibility.

"Commitment on fiscal consolidation and focus on supply augmentation bolster macro-economic stability and spell good news for bond markets and debt mutual funds. In equity markets, long term investors will take the budget positively while the near-term direction will depend on global cues, incoming data and earnings trajectory," Navneet Munot, MD & CEO - HDFC Asset Management Co, said.

JP Morgan Chase & Co. in September last year announced that it will add Indian government bonds to its benchmark emerging market index from June 2024 influenced the inflow in the country's bond markets in the past few months.

Rajeev Radhakrishnan, CIO Fixed Income, SBI Mutual Fund said that a faster-than-anticipated pace of fiscal consolidation and gross borrowings being lower than market estimates have been the positive features of the budget from a bond market perspective. The cushion from the GST compensation cess has enabled the gross borrowings to be lower at Rs 14.13 lakh crore, he added.

ITI Mutual Fund Group said that the key themes of the interim Budget 2024 are fiscal consolidation and continued capex-led growth. The focus continues to be on infrastructure, renewable energy, housing, agriculture and railways.