Mumbai: The yield on the government's 10-year bond fell nearly 10 basis points on Monday, its biggest slump in nearly seven weeks, as prices surged after the Union Budget avoided extra government borrowing for the current fiscal. The market also cheered steps to allow better access to government bonds, and that certain government securities would be opened fully to non-resident investors.
The yield on the 10-year government bond was at 6.503% compared with the previous close of 6.601%. Bond yield and prices move in opposite directions.
"The budget should be neutral to slightly positive for bonds, with some relief stemming from the absence of additional borrowing in FY20 and gross issuance largely in line with our forecasts", said Nomura Research in a note to its investors.
The government retained its gross market borrowing at 7.1 trln rupees for 2019-20. For next year, gross market borrowing has been estimated at ₹7.81 trillion and is in the ballpark expectation range, and no extra borrowing for the current year, analysts believe, is an unequivocal positive surprise for the market.
The government hiked participating limit for foreign portfolio investors (FPIs) in corporate bonds to 15% from 9% of outstanding currently. Also, importantly, certain specified categories of government securities would be opened fully for non-resident investors, apart from being available to domestic investors as well.
The fiscal deficit numbers for the current financial year and the next were in line with market expectations at 3.8% and 3.5% of Gross Domestic Product (GDP) respectively.
Traders will now shift their focus to Reserve Bank of India's bi-monthly policy, due on 6 February. With the RBI having cut interest rates five times last year and with inflation exceeding 7%--well about the central bank's target--there may be limited scope to ease more, analysts believe.
In pre-opening trade, the benchmark Sensex index was down 0.2% or 74.11 points at 39661.42 points. Year to date, the index has lost 2%.
The Indian rupee opened weak against the US dollar on Monday, tracking the slump in Asian currencies.
In early deals today, the rupee traded at 71.59 a dollar, down 0.34% from Friday's close of 71.36. The Indian unit had opened at 71.65 a dollar. Year to date, the rupee has weakened 0.5%, while foreign investors have bought nearly $1.90 billion in Indian equities and sold $1.60 billion in debt.
"Continued fiscal consolidation in FY21 could be viewed by markets as positive for INR, but the weak external environment remains a considerable headwind", said Nomura Research in a note to its investors.
Asian currencies slumped amid worsening of the coronavirus outbreak. China renminbi was down 1.4%, South Korean won 0.5%, Indonesian rupiah 0.49%, Taiwan dollar and Malaysian ringgit were down 0.3%, Singapore dollar 0.23%, Philippines peso 0.23%, China Offshore 0.2%, Thai Baht and the Japanese yen fell 0.13%.
The dollar index, which measures the US currency’s strength against a basket of major currencies, was at 97.897, up 0.03% from its previous close of 97.867.
(Bloomberg contributed to this story)