Raising of funds through corporate bonds fell to a 10-month low in August as yield on these instruments rose due to high inflation print, experts said.
According to data from Prime database, companies and banks raised Rs 55,140 crore in August 2023, as compared to Rs 55,924 crore in August, 2022.
“The volatility had kept the investors on the side lines and also it’s impossible for them to time the market. All issuers want to borrow money at the cheapest rate and the spike in rate did not allow them to explore the market,” said Umesh Kumar Tulsyan, Managing Director of Sovereign Global Markets, a New Delhi-based fund house.
In August, yield on corporate bonds rose nearly 15-20 basis points (Bps) across maturities in the secondary as well as primary markets.
One basis point is one hundredth of a percentage point.
Mataprasad Pandey, Vice President of Arete Capital Service, said the rates remained elevated because of higher US Treasury Yields which touched 4.366 percent in August and India Government Bond yields, which in response also touched 7.256 percent on August 17.
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The numbers
According to the data, issuances in August were the lowest since October 2022, when companies and banks raised Rs 46,000 crore through corporate bonds.
On a yearly basis, issuances of corporate bonds were 1.4 percent down and on a monthly basis, they were down 16.6 percent.
In August 2022, issuances stood at Rs 55,924 crore. The data further showed that issuances have seen a fall since July 2023, after heavy issuances worth Rs 1.21 lakh crore were made in June.
Since the start of this calendar year, issuances have breached the Rs one lakh crore mark three times in March, May and June.
Rate movement
Yield on corporate bonds has seen an upward movement in August, especially after the CPI Inflation print which came as a surprise to the market. Most debt instruments have seen an upward movement.
Yield on the three-year and five-year corporate bonds which were trading in the range of 7.55-7.65 percent at the start of August, moved up to 7.65-7.75 percent by the end of August.
Similarly, yield on 10-year corporate bonds rose to 7.62 percent at the end of August, from 7.52 percent in early August.
However, Pandey from Arete Capital said that in August, government bond yield was reacting more to US macros, and had minimal impact on CPI. Yield on G-sec, however, was elevated and moved in the range of 7.15 percent to 7.25 percent due to higher US treasury yields.
Inflation print
In July, India's headline retail inflation rate raced past the upper bound of the Reserve Bank of India's (RBI) 2-6 percent tolerance range in July and shot up to a 15-month high of 7.44 percent, spurred on by a massive increase in vegetable prices.
At 7.44 percent, the Consumer Price Index (CPI) inflation print for July was a huge 257 basis points higher than the revised June number of 4.87 percent and has crossed the RBI’s medium-term target for 4 percent for the 46th month in a row.
The current estimate suggests that the August CPI Inflation print likely fell to 7.0 percent from July's 15-month high of 7.44 percent.
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Way ahead
Money market dealers expect issuances of corporate bonds to increase in coming months due to a moderation in inflation and likely pick up in private investment.
“We may see more issuances in H2-FY24 as yield also will moderate gradually on account of moderating inflation and the expected pick up in private investment in the second half of the fiscal,” Pandey said.
Tulsyan from Sovereign Global said yield on government securities would remain range bound from 7.15 percent to 7.30 percent till the monetary policy is announced in October. Corporate bond yield is also likely to follow G-Sec yield in the coming months, dealers said.
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