StanChart sees Indian government’s net borrowing unchanged in FY25

By Dharamraj Dhutia

MUMBAI (Reuters) – India’s net government borrowing in the next fiscal is likely to remain largely unchanged, a treasury official at Standard Chartered said, adding nearly a fifth of the supply may be absorbed by foreign investors who could invest $25 billion-$30 billion in government debt.

“Central government (is expected) to target a narrower FY25 fiscal deficit of 5.3%-5.6% of GDP, vs 5.9% in FY24, and this can lead to a net borrowing of 11.80 trillion to 12.20 trillion rupees ($142 billion-$146.83 billion),” said Parul Mittal Sinha, head of financial markets, India, at the bank.

Since October, foreign investors have bought more than $5 billion of government bonds that are due for inclusion in the JPMorgan emerging market debt index starting June 2024, according to data from Clearing Corp of India.

“The pace of foreign portfolio investment (FPI) inflows in debt has already increased and we expect the momentum to continue as we move towards June 2024,” Sinha said.

She said Standard Chartered is positive on Indian government bonds (IGB), and is eyeing moderating inflation, potential monetary policy easing, fiscal consolidation and index inclusion-related inflows as major triggers for 2024.

Sinha expects the five-year yield to ease to 6.75%, and the benchmark 10-year yield to fall to 6.85% by the end of June. The yields were at 7.03% and 7.16%, respectively, on Wednesday.

“We expect global sentiment to turn positive on EM (emerging markets), Reserve Bank of India commentary to become more dovish in the upcoming Monetary Policy Committee meetings, and index inclusion related-inflows in IGBs to continue going into June.”

Foreign investors currently hold 2.14 trillion rupees of bonds, or 2.1% of overall outstanding securities. This includes 1.41 trillion rupees of bonds under the Fully Accessible Route, or 3.7% of the outstanding issuance, most of which will be part of the index.

($1 = 83.0910 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Sonia Cheema)