Home / Money / Personal Finance /  How debt funds may shine from FM’s fiscal deficit target of 5.9% for FY24?

Nirmala Sitharaman, the Union Finance Minister, forecasted a fiscal deficit of 5.9 per cent of GDP in FY24 in her budget address. The revised projection for the budget deficit for FY23 was pegged at 6.4 per cent by the finance minister. She also reaffirms her goal of reducing the fiscal deficit to less than 4.5% of GDP by 2025–2026.

“To finance the fiscal deficit in 2023-24, the net market borrowings from dated securities are estimated at 11.8 lakh crore. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at 15.4 lakh crore," said FM in her Budget speech.

The government intends to gross borrow 15.43 trillion rupees ($188.64 billion) through the issuance of bonds in 2023–2024 while maintaining the net borrowing at 11.80 trillion rupees, according to Finance Minister Nirmala Sitharaman. After which, the benchmark 10-year yield reached closed at 7.277% as of 15:30 p.m. IST after reaching a high of 7.416%.

Dhawal Dalal, CIO – Fixed Income, Edelweiss MF said “The finance minister delivered her 5th Union Budget today with clear focus on capex-led growth while maintaining fiscal prudence. A 33-percent jump in capex to Rs. 10 trillion in FY24 will create multiplier effect on economic activities and support additional jobs. Higher allocation for Indian Railways will continue modernization of the key infrastructure and heavy industries. Extension of 50-year interest-free loan to States by one more year while linking it to capex will support infrastructure development. Market participants rejoiced the conservative estimates in the Union Budget with no fine print or hidden negatives. There was something positive for every strata of the society. Broadening of personal tax slabs and nudge for the New Tax Regime is aimed at higher savings which may support personal consumption."

“FY24 nominal GDP is assumed to grow at 10.5%, which is quite credible. Increase in FY24 net tax receipts at 11.5% suggests modest tax buoyancy. Fiscal deficit is expected to contract by 50 bp to 5.9% of GDP with aim to bring it below 4.5% of GDP by FY26. Bond and equity markets rebounded sharply after the announcement. For bond market, FY24 net borrowing of Rs. 11.8 trillion and gross borrowing of Rs. 15.4 trillion was on the lower side of market estimates. This should keep benchmark bond yields from rising, in our view. We expect benchmark 10Y sovereign bond yield to trade between 7.25% and 7.5% in the near-term," said Dhawal Dalal.

Kaustubh Belapurkar, Director – Manager Research, Morningstar India said “Fiscal deficit estimates lower at 5.9% helps the market gain greater confidence in the continuing fiscal prudence. This will allay concerns of significant upwards pressure on bond yields. Focus will shift back towards RBI monetary policy. Overall a positive sign for the bond markets and debt mutual fund investors."

Manish Jeloka, Co-head, Products & Solution, Sanctum Wealth said “The budget announced a fiscal deficit target of 5.9% for FY24 and a gross borrowing below the market expectation. The fiscal deficit was being closely watched by market participants given this was the final full budget before the election and that the government may look at some populist measures during the budget. However, with lower-than-expected fiscal deficit of FY24 and a fiscal consolidation glide path towards a fiscal deficit target of 4.5% of GDP by FY26, bond markets reacted positively. The 10-year benchmark yield declined by 7bps in reaction to this."

Mr. Sandeep Bagla- CEO, TRUST AMC.said “Budget has addressed most of pressing needs of the hour. The expenditure of 10 lakh cr on capital expenditure is encouraging for growth. The borrowing numbers are in line with bond market expectations. Inflation has been below RBI comfort threshold, US 10 year yields are down 90 bps from peak. I think a similar rally in Indian bonds is overdue. The budget itself was non negative for debt funds, but is very likely that there will be a smart rally in bonds this year. We, at TRUST MF, are highly confident that money will move to longer duration funds, where the returns can be as high as 9-10% this year."

CA Manish P Hingar, Founder at Fintoo said “The fiscal deficit number and government borrowing are in line which will have a positive impact on the bond and debt mutual fund. On the path of fiscal consolidation where the focus is below 4.5 % by 2025-26. For the year 2023-24 government is focusing to achieve a 5.9% fiscal deficit To finance the fiscal deficit in 2023-24, the market borrowings from dated securities are estimated to be Rs. 11.8 lakh crore and the balance of 15.4 lakh crore is to come from small savings and other sources. The investment demand is likely to remain strong and increase corpus. FPIs could turn buyers as the real interest rate looks attractive and If the inflation is in control it is quite possible that the Indian bond market could see a rally of 50-60 basis points. This can keep the bond market attractive for next a year or so."

Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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