Comments
As bond traders around the world rejoice in this year’s dizzying debt rally, the mood is more tempered in India.
Yields have barely budged despite the governments recent measures to lift Asia’s third-biggest economy. Even prediction of deeper interest-rate cuts by Goldman Sachs Group Inc after Friday’s data showed growth hitting a six-year low did not push up bond prices a whole lot on Tuesday.
The reason: traders are worried the weak GDP print may force the government to deliver a big revival package, which it has so far resisted. Fears of stimulus adding to already record borrowings led to benchmark sovereign notes capping their worst performance in 16 months in August.
Read more:India's GDP growth slumps to 5% in April-June quarter
“The deeper-than-expected slowdown in growth has raised hopes for rate cuts, but on the flip side, it also raises the risk of fiscal stimulus,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. “Revenue collections may also continue to remain low as seen by the latest goods and service tax numbers.”
Scepticism over the government’s fiscal restraint has persisted even after Finance Minister Nirmala Sitharaman desisted from any major fiscal break in her package to boost growth. Bond gains sparked last week by a record fund transfer from the RBI to the exchequer, but the rally did not last even one session as traders feared the cash may be used to pump-prime the economy, instead of plugging the deficit.
Also read:Stimulus package: CSR norm violations not to be treated as criminal offence, says Nirmala Sitharaman
On Tuesday, the benchmark 10-year yield fell 4 basis points at 6.52 per cent. It rose 19 basis points in August, the most since April 2018.
India’s fiscal gap has already reached 78 per cent of the target for the full financial year in the first four months through July, data showed on Friday.
“Overall, tax revenues will likely disappoint again, particularly with nominal GDP growth slowing down,” Kotak Mahindra Bank economists including Suvodeep Rakshit wrote in a note. “Room for a fiscal stimulus will be minimal without compromising on the fiscal deficit target.”
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.