Home / Budget / Opinion /  Budget 2021: 'Debt investors should go for schemes with 2 to 4 year maturity'

By Vikas Garg

Amidst the unprecedented economy disruption caused by the Pandemic, Finance Minister has delivered a growth-oriented budget specifically targeted towards the sectors like health, infrastructure, and the financials. While it will be a medium term positive, it has also resulted in a substantially higher fiscal deficit for FY21 / FY22 at 9.5% / 6.8% respectively with a fiscal gliding path to 4.5% by FY26. Quality of the fiscal deficit is better with higher spend towards the capex and with part of the food-subsidy taken on its own balance sheet. Total Revenue is budgeted to grow by 23% & the total Expenditure is kept nearly unchanged in FY22 as compared with Revised Estimates of FY21. Nominal GDP projection for FY22 is pegged at 14.4% which looks conservative and achievable.

For the debt market participants, another record year of ~ 12 lakh crore of Central Govt’s gross borrowing in FY22 and an additional 80,000 crore in rest of FY21 is a negative surprise. FY21 record high G-Sec borrowings were largely supported by RBI’s interventions in various ways and FY22 would also require a continued support from RBI especially as the credit growth picks up. Any amiss on RBI’s part can harden the interest rates in FY22 which can be counter-productive in supporting the nascent economic growth. We advise the debt investors to look into the schemes having investments largely into 2 to 4 year maturity as of now and wait for RBI’s OMO guidance before looking at the longer tenor maturity.

(The author is the Head – Fixed Income , Invesco Mutual Fund. Views expressed are his own.)

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