Moneycontrol
Last Updated : Jan 04, 2018 04:48 PM IST | Source: CNBC-TV18

Expect fiscal deficit to be at or below 3.5%: I-Sec PD

Crude prices have extended gains - nearing USD 68 per barrel. As well, the market is awaiting the new 10-year bond. In an interview to CNBC-TV18, A Prasanna, Chief Economist at I-Sec PD spoke at length about how these factors might impact bond yields.

CNBC TV18 @moneycontrolcom

Crude prices have extended gains - nearing USD 68 per barrel. As well, the market is awaiting the new 10-year bond. In an interview to CNBC-TV18, A Prasanna, Chief Economist at I-Sec PD spoke at length about how these factors might impact bond yields.

Prasanna said the market is grappling with extra borrowing and uncertainty about fiscal matrix. Therefore, the bigger driver for the market is what is going to be next year's fiscal deficit and borrowing number.

He further said that small savings collection will not be below budgeted amount of Rs 1 lakh crore.

We expect new 10-year bond yield to settle at 7.25 percent, said Prasanna.

According to him, bond market in India has always been optimistic.

We expect fiscal deficit to be at or below 3.5 percent, he added.

Below is the verbatim transcript of the interview.

Latha: Crude moving towards USD 68 per barrel. Is it changing things a bit? Will it be even worse for bonds? What is the range?

A: The market is still seeing it as a temporary move. Of course, some of it related to the ongoing problems in Iran, so we do not know for sure whether this move will sustain. But you have to remember anyway market is grappling with extra borrowing and uncertainty about the fiscal metrics. So, obviously this one more negative to be added, but I would say still the bigger driver for the market is what is going to be next year's fiscal and the borrowing numbers. So, all the other negatives at this point of time are subsumed in that larger question.

Latha: A two part question. There were some economists noting that the small savings collections are lower this time. How do you expect that to impact borrowing and therefore bond yield? And secondly, the new ten-year is going to get auctioned. So can you give us a range for both the old and the new for the month of January?

A: Small savings collections, we do not think is going to be lower than what is budgeted. Budgeted amount is around Rs 1 trillion. The actual collections will perhaps slightly exceed that number. So we are not worried about it. The comparisons are a bit lopsided because last year, after demonetisation the collections picked up whereas this year, from April itself the collections have been quite healthy. So maybe the year-on-year comparisons have been lopsided in both the halves of this year. As far as the range for the new ten-year, the new ten-year should settle around 7.25 this month and the old ten-year should be around 15-20 basis points higher than that.

Latha: How would you enter the Budget? Would the market enter the Budget light assuming that there could be some bit of fiscal slippage?

A: Bond market is always known for being optimistic in India. That is not how bond market is supposed to function but we are different. So I would assume that there will be a segment of the market which will still believe that the fiscal deficit will be lower than or closer to around 3.2-3.3 percent. Our own initial calculations show that it will be around 3.5 percent. Of course, we have to firm up the numbers. So, we do think there is a chance that the market again goes into the Budget a little bit heavier and Budget turning out to be negative.
First Published on Jan 4, 2018 10:26 am

tags #Economy

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