MUMBAI: Indian government bonds are expected to witness a relief rally, as the estimated revenue loss from the tax cuts on multiple items was far lower than market participants had feared.
The benchmark 10-year bond yield is expected to trade in the 6.48%-6.52% range after ending at 6.5430% on Wednesday, a trader with a private bank said.
“Some bit of the news was factored in over the last two days, and so we could see some rally today, but it would not be a one-way street,” the trader said.
On late Wednesday, India announced tax cuts on hundreds of consumer items to spur domestic demand in the face of economic headwinds from punishing US tariffs.
The federal and state governments are estimated to lose around 480 billion rupees ($5.46 billion) due to the cuts that will be implemented from September 22.
The projection is sharply lower than market estimates, which were as high as 1 trillion rupees.
“Simple extrapolation to FY26 would imply INR 576bn (0.16% of GDP) net revenue loss, but the treatment of loss of compensation cess revenue remains unclear,” Citi said in a note.
Caution gripped the bond market ever since the government announced its plans to cut GST rates, as it fuelled concern about additional borrowing. Traders will eye demand at New Delhi’s 250-billion-rupee debt auction due later in the day.
Meanwhile, discussions between the central bank and market participants on the second-half borrowing programme have started and will continue over the coming days, traders said.
The meeting comes at a time when traders have been calling for the Reserve Bank of India’s intervention to support bond prices.
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