States on Tuesday got some reprieve in their debt cost with the weighted average price falling by 12 bps to 7.67 per cent due to receding appetite from issuers as they received tax payouts from the Centre last week.
Assam, Bihar, Karnataka and Punjab have raised Rs 8,800 crore from the market at the auctions, which is nearly 31 per cent lower than the Rs 12,800 crore indicated for this week.
According to Icra Ratings, the states have been drawing less from the market as the Centre has released two instalments of tax devolution aggregating to Rs 1.2 lakh crore on November 10, which eased their cash-flow position, leading to some states skipping the auction.
The additional devolution in November may continue to drive the trend of lower-than-indicated borrowings in the coming weeks, the agency said.
As a result, at the auctions today, the weighted average cut-off declined by 12 bps to 7.67 per cent from 7.79 in the last auction, amid a stable weighted average tenor at 12 years, the agency said.
Similarly, the 10-year G-sec yield eased to 7.26 per cent from 7.43 per cent last Tuesday, tracking the decline in the US treasury yields, crude oil prices and domestic inflation.
Accordingly, the weighted average cut-off of the 10-year state bonds declined to 7.67 per cent today from 7.83 per cent last week, resulting in a mild rise in the spread with the 10-year G-sec yield to 41 bps from 39 bps.
Gujarat, Himachal, Maharashtra, Tamil Nadu, and Telangana did not participate in the latest auctions, even though they had indicated a combined borrowing of Rs 7,500 crore for this week.
Notably, Karnataka, which has hit the market for the first time this year today, issued Rs 4,000 crore, double of what it had indicated.
Similarly, Punjab raised an additional Rs 1,500 crore beyond what it had indicated, issuing 20-year debt at a cut-off of 7.65 per cent, which is lower than the cut-off of 7.67-7.68 per cent that the 9-10-year loans from Assam, Bihar and Karnataka offered.
Cumulatively, 26 states raised Rs 3.8 lakh crore so far this fiscal, which is just about 5 per cent lower than the year-ago level when it stood at Rs 4 lakh crore.
Arunachal, Chhattisgarh, Tripura and Odisha are yet to hit the market this year.
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