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Disinvestment – IDFC MF

By: Punam Sharma

Disinvestment
 

  • Disinvestment refers to sale of government assets or Public Sector Units (PSUs), partly or fully, by Government of India (GOI).
  • Disinvestment policy was adopted by GOI in 1991.
  • All matters relating to disinvestments of GOI shareholdings in Central Public Sector Enterprises (CPSEs) are handled by the Department of Disinvestment.
  • Department of Disinvestment was set up in 1999. In September 2001 was renamed as Ministry of Disinvestment and from May 2004 it became one of the departments under Ministry of Finance.

 
Disinvestment snap shot
 

  • Chart below shows disinvestment trend budget estimate and actual amount realized.

 
Disinvestment-Budget Estimate vs Actual Amount Realised
 

  • Total disinvestment amount realized till date has been around 1.39 lakh crore as against budget estimate of around 2.80 lakh crore.
  • Except for the years 1992, 1995, 1999, 2004 and 2013, GOI has under shot its budget estimates for disinvestments.
  • During 2006 to 2009, GOI had no disinvestment targets and interestingly for the years 2007 and 2009 government raised no money through disinvestments.
  • FY14, GOI has achieved only around 5% of its budget estimate.
  • Chart below shows various disinvestments done by GOI during FY13 and FY14.

 

 

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10 year Government Security
 

  • To fund its fiscal deficit, Government of India (GOI) issues securities-short and long term.
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  • GOI funds around 90% of its fiscal deficit through dated securities.
  • Among the different tenure dated securities issued, 10 year security represents where most of the borrowing takes place.
  • India, following international standards, considers 10 year security as the benchmark security.
  • Also, GOI generally takes mid to long term view on borrowing and long term view commonly being for a 10 year, having a 10 year benchmark seems viable.
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Issuance of 10 year benchmark security
 

  • Generally, RBI issues 10 year benchmark security on behalf of GOI at the start of the fiscal year setting the yield curve trend for the year.
  • Table below shows issuances and outstanding amount of 10 year benchmark securities.

 

 

  • As seen from above table, most of the time, 10 year benchmark security has been issued start of the fiscal year.
  • Generally, there is one benchmark security for a fiscal year except in 2009 and 2014.
  • New benchmark security is issued when outstanding amount generally crosses above 70,000cr.
  • Chart below shows borrowing under 10 year security and other dated securities as % to total auction borrowing amount accepted1.

 

 

  • From above chart, it can be observed that a 10 year security represents more than 10% of the borrowing.
  • Chart below shows minimum, maximum and average 10 year security yield from 2000 till 20142.

 

 

  • Below chart is a histogram showing the frequency (in %) of 10 year yield in different yield range from 2003 till 2014 (data till 19th December 2013).

 
Yield Range
 

  • It’s observed from above that around 66% of times 10 year yield ranges between 7 to 8%.
  • 10 year yield has been in the range of 9% or more only around 1.49% of time.

 

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Gsec Issuance – IDFC MF

By: Punam Sharma

Gsec Issuance
 

  • Government of India issues short and long term securities mainly to fund its fiscal deficit.
  • Long term securities are termed as dated securities which can be issued for tenure of 2 to 30 years.
  • RBI auctions the securities on behalf of GOI and in consultation with GOI provides half yearly borrowing calendar.
  • Mostly RBI announces the auction of Gsec on a Monday and auctions takes place on the following Friday.
  • Gsec auctions are announced by RBI through notification and press release on its website and advertisement in leading English and Hindi newspaper.

 
Types of auction RBI conducts
 

  • Auctions for Gsec can be yield based or price based.

 

 

  • Auction allocation can either be uniform or multiple price based.
  • Under uniform price allocation, all successful bidders pay at same cut off rate irrespective of the price or yield which they had bid at.
  • Under multiple price allocation, all successful bidders pay at respective price/yield which they had bid at.

 
Gsec Issuance snap shot
 

  • Chart below shows the ownership pattern of dated securities as on June 2013.

 
ownership pattern of dated securities as on June 2013
 

  • Table below show dated securities actual versus projected borrowing for the current financial year.

 

 

  • Chart below shows weighted average yield and maturity of dated securities over the years.

 
weighted average yield and maturity of dated securities over the years
 

 

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