Latest news with #StateDevelopmentLoans
Mint
6 days ago
- Business
- Mint
Trading strategy to future outlook: LGT Wealth's Chirag Doshi points out four key things for Indian bond investors
India's fixed-income market is entering a defining phase. With inflation comfortably within the RBI's target band and growth on track, the current setup presents a compelling opportunity for investors to lock in attractive real yields with a prudent mix of quality and risk. Macro indicators continue to paint a favourable backdrop. Headline inflation has cooled to ~3%, GDP growth is tracking around 6.5%, and the Reserve Bank of India has front-loaded policy easing, cutting the repo rate by 100 bps so far in 2025 to 5.50%. A sharp reduction in the cash reserve ratio (CRR) has further eased systemic liquidity. While the RBI's stance has turned neutral, the overall tone remains accommodative. The government bond yield curve has flattened at the long end but remains steep in the 3- to 7-year segment. As of early July, the 5-year G-Sec trades near 6.00%, while the 10-year benchmark hovers around 6.30%. State Development Loans (SDLs), offering a 25–30 bps premium, remain attractive for incremental yield without compromising credit quality. We continue to find value in the 5–7-year part of the curve, where investors can capture both decent carry and roll-down potential. Long-duration positions are best approached selectively, especially considering global cues and potential domestic supply pressures. In the corporate bond market, shorter maturities (up to 5 years) dominate new issuance as issuers and investors both gravitate toward lower duration amidst falling rates. AAA-rated NBFCs and PSUs are raising capital at 6.60–6.80% for 5-year tenors—offering spreads of around 80–100 bps over corresponding G-Secs. For investors comfortable with slightly higher risk, selectively allocating to well-researched high-yielding credits in the A to A- category can meaningfully enhance portfolio carry. The key here is to remain cautious, focus on issuers with strong cash flows, seasoned promoters, and transparent governance, and avoid overexposure to any single name or sector. In this phase of the cycle, we recommend a laddered portfolio approach that combines duration and credit quality thoughtfully. The objective should be to build a robust carry while maintaining resilience against unexpected macro shifts. Liquidity sleeve (0–1 year): Deploy into liquid and ultra-short funds or short G-Secs for parking and capital preservation. Core carry (3–7 years): Focus on 5–7-year G-Secs and AAA-rated corporates to optimize yield and manage duration risk. Yield enhancement (2–4 years): Add select high-yielding A/A- rated bonds in moderation for portfolio lift, with strict attention to credit selection and size limits. The RBI's August policy review, which could provide clarity on the pace and extent of further easing. Inflation trajectory, particularly in food prices post-monsoon. Global rate trends and commodity prices, especially crude oil. Government borrowing calendar and potential changes to the fiscal glide path. Any of these factors could influence bond yields, particularly at the long end of the curve. With policy easing largely behind us and inflation under control, fixed income investors are well-placed to lock in real returns that look increasingly attractive on a risk-adjusted basis. The opportunity is not about chasing yield, but about building carry, layering quality, and being intentional with credit. At this juncture, prudently structured portfolios—anchored in core quality, with calibrated exposure to high-yielding credits—can deliver consistent performance through the cycle. The bond market, in short, is offering a window worth stepping into—cautiously, but confidently. The author, Chirag Doshi, is the CIO at LGT Wealth India. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
The Hindu
03-07-2025
- Business
- The Hindu
Telangana treading cautiously on market borrowings; it raised ₹17,400 crore in first quarter
Telangana Government appears to be treading cautiously in its market borrowings. It has proposed to raise ₹11,000 crore market borrowings during the July-September quarter of the current financial year [2025-26]. This is much lower compared to ₹17,400 crore raised during the April-June [first] quarter primarily to be used to credit assured amounts into the accounts of farmers under Rythu Bharosa — the farmers' investment support scheme. What are market borrowings? Market borrowings by State Governments refer to the funds that State governments raise by selling securities, primarily State Development Loans (SDLs), to investors in the market. Securities are assurances given by State government. The State government proposes to raise ₹4,500 crore in four tranches in July, participating in all but one auction of securities to be conducted by the Reserve Bank of India (RBI). It has raised ₹1,500 crore during the auction conducted on July 1 and plans to raise ₹3,000 crore in three instalments during the auctions to be held on July 15, 22 and 29. Similarly, the government indicated that it would raise ₹3,500 crore in three auctions during August and balance ₹3,000 crore in three more auctions during September taking the total borrowings to ₹11,000 crore for the quarter, according to the provisional figures in the indicative calendar of borrowings released by the RBI for the second quarter. Why are market borrowings raised? This is a key method for States to finance their fiscal deficits and fund various developmental activities. State Development Loans are now categorised as State Government Securities. A steep reduction in the borrowing limit by the Union Finance Ministry is said to be another reason for the State government to tread cautiously. The government had proposed to raise over ₹69,539 crore through borrowings, including open market borrowings of ₹64,539 crore during the current fiscal in the budget estimates. But the quantum had, however, been reduced steeply to ₹54,009 crore as could be seen from the provisional figures in the key indicators released by the Comptroller and Auditor General of India in the first two months forcing the Government to restructure its open market loans to meet the requirements. What are consolidated sinking and guarantee redemption fund? State governments have to deposit a certain amount with Reserve Bank of India under the consolidated sinking fund and guarantee redemption fund mandatorily. If a State government defaults on the loan payments, money is deducted from these funds. Expenditure on interest payment in two months While the cut in borrowing limit had come as a setback, the State Government is facing a tough task in the form of interest payments. The government had incurred ₹4,166 crore towards interest payment by May end, spending 21.51% of the ₹19,639 crore projected for the year in just two months.
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Business Standard
17-06-2025
- Business
- Business Standard
SDL-based STRIPS: Use for duration matching, not for tactical gains
Invest for more than 12 months to enjoy favourable tax treatment Listen to This Article Starting June 12, the Reserve Bank of India (RBI) has permitted the use of the separate trading of registered interest and principal of securities (STRIPS) mechanism for State Development Loans (SDLs). It was earlier allowed for central government securities (G-Secs). 'This will enhance price discovery, deepen liquidity, and pave the way for a transparent zero-coupon yield curve in state debt,' says Vishal Goenka, cofounder, Understanding STRIPS STRIPS involve breaking a standard bond — comprising regular interest (coupon) payments and a final principal repayment — into individual zero-coupon instruments. 'These zero-coupon government securities do not pay periodic interest, but are sold at
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Business Standard
06-05-2025
- Business
- Business Standard
4X growth and counting: Baroda BNP Paribas Gilt Fund hits Rs 1,500 crore
Baroda BNP Paribas Gilt Fund, a flagship fixed income mutual fund, has completed its twenty third year with a dual milestone of surpassing Rs 1,500 crore in Assets Under Management (AUM), and rewarding investors with 4X growth. Since inception, the Baroda BNP Paribas Gilt Fund has delivered consistent long-term returns, transforming an initial investment of RS 10,000 into Rs 41,919.60 as of March 31, 2025 — an over four-fold increase. "Over the past 12 months alone, the scheme's regular plan has provided a 9.61% return, making it a preferred choice for investors seeking low-risk, long-duration debt investments with capital appreciation potential," Baroda BNP Paribas Mutual Fund said in a statement. The fund maintains zero default risk, ensuring stable and secure returns. "The portfolio of the Baroda BNP Paribas Gilt Fund is positioned to actively benefit from the spreads between G-Secs and SDLs as well as from our expectations of softening of the yield curve led by positive fundamentals for India's bond markets,' said Prashant Pimple, Chief investment officer Fixed income, Baroda BNP Paribas Asset Management (India). Managed by Gurvinder Singh Wasan, CFA, Senior Fund Manager and Prashant Pimple, Chief Investment Officer – Fixed Income at Baroda BNP Paribas Mutual Fund, the scheme primarily invests in high-quality, risk-free government securities and State Development Loans (SDLs). "The fund takes strategic duration calls to capture potential gains from expected RBI interest rate cuts, making it an ideal option for investors looking to benefit from a falling interest rate environment. With the latest RBI monetary policy changing its stance to accommodative from neutral, schemes such as these, are well positioned to benefit from the capital appreciation that will result from the RBI cutting repo rates," the company said in a statement. "'We expect to run a portfolio duration close to the duration of the benchmark 10-year G-Sec security. This is based on our view that rates can come down lower given inflation adjusted real rates are still in positive zone," said Pimple.
Mint
29-04-2025
- Business
- Mint
State government borrowings dip sharply in April
New Delhi: State government borrowings through securities declined sharply to ₹ 53,870 crore in April from ₹ 2.25 trillion in March, according to the latest data from the Reserve Bank of India (RBI), likely deferring costlier loans to suit spending. On Tuesday, 10 states raised ₹ 24,700 crore through auctions of State Development Loans (SDLs), the largest tranche during the month. Earlier in April, states had mobilized funds in four smaller tranches of ₹ 11,800 crore, ₹ 3,500 crore, ₹ 3,000 crore and ₹ 10,870 crore. SDLs are bonds issued by state governments to finance budgetary needs and fund development projects across infrastructure, health, education and other public services. These securities are auctioned by the RBI and are a key tool for states to raise resources from the market. The indicative amount for state borrowings in the first quarter of FY26 (April–June 2025) is pegged at ₹ 2.73 trillion, slightly higher than the ₹ 2.54 trillion estimated in the same period last year. Experts note a growing trend among states to defer the bulk of their market borrowings to the second half of the financial year, giving them greater flexibility in managing cash flows and project timelines. States typically rely on low-cost or interest-free funds in the first half of the fiscal year—such as their tax revenues, central tax devolution, GST compensation, and interest-free loans from the Centre—before turning to market borrowings when these sources begin to dry up, said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP. "Many state infrastructure projects—from roads and bridges to water supply systems—gain real momentum only after the monsoon season ends. Naturally, this means higher spending (and borrowing) needs in H2," he said. "Also, to ensure that the bond market isn't flooded with too much borrowing at once, the central government has been frontloading its bond issues in the first half, leaving more space in the second half—especially in Q4—for states to borrow without driving up interest costs. It's a coordinated move that benefits both sides," he added. At Tuesday's auction, Maharashtra led with ₹ 6,500 crore, followed by Rajasthan ( ₹ 4,500 crore), Punjab ( ₹ 2,500 crore), Uttar Pradesh ( ₹ 3,000 crore) and Kerala ( ₹ 2,000 crore). Smaller amounts were raised by Telangana ( ₹ 1,400 crore), Himachal Pradesh ( ₹ 1,300 crore), Tamil Nadu and Haryana ( ₹ 1,000 crore each), Uttarakhand ( ₹ 1,000 crore) and Tripura ( ₹ 500 crore). First Published: 29 Apr 2025, 08:34 PM IST
