Standard Chartered says India's debt investors "need not be disappointed" with the government's 2013/14 gross borrowing target of 6.29 trillion rupees announced on Thursday, which had sent bonds to their worst day in seven months in the previous session.
After adjusting for a buyback of 500 billion rupees, the gross borrowing is at 5.79 trillion rupees, only 4 percent higher than in the current fiscal year ending in March, StanChart says.
The bank adds India had not budgeted for any cash drawdown in 2013/14, despite a cash surplus estimated at 1 trillion rupees, which the government may have retained as a cushion should revenues fall below its estimates.
"We believe such a large cash surplus has the potential to surprise the markets positively," StanChart says.
Easing inflation and rate cut hopes should be positive for bonds, the bank adds, recommending investors hold 10-year bonds.