Fundraising through corporate bonds fell sharply in April on the low requirement of funds by companies, dealers said.
This was despite a sharp fall in yields on these instruments after a rate pause by the Reserve Bank of India (RBI) in its April monetary policy.
Corporate bonds are debt securities issued by private and public companies and banks.
“Usually in April the issuers stay calm and come to the market only after finalising the accounts. But as the policy action was supportive with pause and a supportive rally, we saw some decent issuances. There’s a lot of activity in March for the obvious reasons of completing the target plans of market borrowings,” said Ajay Manglunia, managing director and head of investment group at JM Financial.
According to Mataprasad Pandey, Vice President, Arete Capital Service, corporate bonds issuances are generally low only during April and May as corporates decide on their expansion plans, borrowing profile (banks/NCDs), etc, in their board meetings and then only come to borrow, hence muted supply till then.
What does the data say?
According to the Prime Database data, companies and banks raised Rs 57,032 crore in April as compared to Rs 1.16 lakh crore in March.
In April 2022, fundraising through corporate bonds was Rs 16,359 crore, data showed.
REC, Power Finance Corp, National Bank for Agriculture & Rural Development, Mahindra & Mahindra Financial Services, Bajaj Finance and Housing Development Finance Corp were top issuers in April raising Rs 27,112 crore.
NTPC, HDB Financial Services and National Housing Bank were some other big issuers in April.
Also read: CP rates down 8-17 bps in last one month; will they sustain at these levels?
The rate movement
Corporate bond yields fell tracking easing yields on the government securities after the central bank refrained from raising rates in its monetary policy in April.
The yield on the 3-year, 5-year and 10-year corporate bonds eased 10-15 basis points (bps) in the last one month. One basis point is one-hundredth of a percentage point.
“The fall in corporate bond rates is the outcome of the RBI policy decision of pausing the rate, and government securities rates also fell by 30 bps in April,” Umesh Kumar Tulsyan, managing director of Sovereign Global Markets, a New Delhi-based fund house.
The 3-year corporate bond yield in the secondary market trading at 7.58-7.63 percent on March 31 fell to 7.42-7.48 percent on April 28.
Similarly, the 5-year and 10-year bond yields fell to 7.45-7.50 percent and 7.48-7.52 percent, respectively, as on April 28, from 7.65-7.70 percent and 7.72 percent on March 31, respectively.
On the rate front, Manglunia said the market feels that the hiking cycle is more or less done, and next year onwards rates may start tumbling down on the policy side, especially when we see inflation in the comfort zone.
Also read: I expect RBI to pause in June policy given CPI trajectory: Baroda BNP Paribas CIO Prashant Pimple
The outlook
Money market mavens say considering the easing borrowing costs, issuances are likely to increase by around 20-25 percent in May.
Any extended pause by the central bank in the upcoming policy in June will also help rates on these instruments to ease further from the current levels.
“This scenario will remain the same for this year too, the added advantage for issuers can be seen as the end of the rate hike cycle. Going forward, we see rates remaining benign this year,” Tulsyan said.
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