A Prasanna, chief economist at ICICI Securities Primary Dealership (PD), spoke to CNBC-TV18 about the fiscal deficit numbers and shared his outlook on bond markets.

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Prasanna said the market is worried that fiscal deficit is going to go up.

“One of the issue for the market is now, they can say safely that structurally fiscal deficit is going up in India irrespective of which political formation is going to be in power, we should be prepared for higher fiscal deficit or at least higher government spending and that something which foreign investors will factor in to their assessment,” Prasanna said on Friday.

With regards to the bond markets, Prasanna said, “From demand-supply point of view, I do not think things are looking good. There is also a technical issue now that current 10-year has become old 10-year and new 10-year is not liquid enough. So there is a bit of that kind of reprising also going on".

“If you look at the old 10-year, it can go up to 7.75 or even higher. The new 10-year will gravitate towards 7.5. The caveat to all this is what happens in the February policy. The base case for us is a stance changed to neutral. We do not expect any rate cut but if RBI gives a dovish guidance and leads market to believe that the rate cut is in the offing by April then rise in yields could get arrested,” he added.

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