Corporate bond issuances surge 63% in August, retail participation rises

corporate bond

Fundraising through corporate bonds shot up sharply by around 63 percent on-year in August 2023 amid lower yields and on the back of infrastructure bonds issued by banks.

“The surge can be primarily attributed to the attractive yields and spreads in the present market scenario where we can clearly see that G-SEC and SDLs are trading at the lowest yields and spread,” said Umesh Kumar Tulsyan, managing director of Sovereign Global Markets, a New Delhi-based fund house.

SDLs are issued by state governments and the auctions facilitated by the Reserve Bank of India. Usually, EPFO, banks, pension funds, select mutual funds, and long-term investors invest in these securities. Whereas, G-secs are government securities issued by central government.

According to the Prime database, banks and India Inc raised Rs 81,925 crore in August, as compared to Rs 50,216 crore a year back. This is an increase of 63 percent year-on-year and is lower by 23 percent compared to a month ago.

State Bank of India, REC Ltd, Bank of Baroda, National Bank for Agriculture and Rural Development, National Bank for Financing Infrastructure and Development, Shriram Finance, LIC Housing Finance, Power Finance Corporation, Canara Bank, and Indian Railway Finance Corp, were top 10 issuers in August.

These entities together raised Rs 39,071 crore, which accounted for 48 percent of the total issuances in August.

Yield on these instruments fell 5-6 basis points in last one month, tracking the easing yields on the government securities.

Yield on corporate bonds maturing in three years were trading at 7.58-7.59 percent on August 30, as compared to 7.60-7.62 percent on July 31. Similarly, yield on papers maturing in five years were at 7.49-7.50 percent on August 31, as against 7.53-7.55 percent on July 31. The yield on 10-year corporate bonds fell to 7.41-7.42 percent on August 30, as against 7.46-7.47 percent on July 31.

Apart from issuances by corporates, share of retail investors in terms of investment in the corporate bonds is also increasing, especially after the reduction of face value.

Nikhil Aggarwal, founder and Group CEO of Grip Invest, said retail investor demand is far outpacing the growth of the overall bond market. “Over the last year, there is a 400-percent-plus growth in retail investments albeit from a smaller base. This suggests that the share of retail in corporate bonds is increasing,” he said.

As investor awareness and penetration increases, this change will allow more investors to participate in the market, especially in public issues which are seeing good demand from retail investors and eventually create a healthy ecosystem for secondary debt transactions, according to Tulsyan.

On July 3, Securities and Exchange Board of India (Sebi) had reduced the minimum investment amount to Rs 10,000, from a steep Rs 1 lakh. This limit had itself been slashed from a huge Rs 10 lakh previously.

The market regulator had said in a release that companies may issue debt security or non-convertible redeemable preference shares on a private placement basis with a face value of Rs 10,000 each. It added that issuers must appoint at least one merchant banker for the issue.

Going ahead, Aggarwal said with the lower face value growth rate of retail participation will be higher, which will lead to higher liquidity in bond market and better pricing of bonds. This will encourage more issuers to tap bond market, he said.