Indian companies as well as banks are flooding the debt market to raise funds ahead of the second half of this fiscal year to avoid congestion, while taking advantage of the recent drop in yields, analysts said.
“Yields have fallen after surging in the first quarter and could rise in the second half, which would lead to increased supply not only from central and state governments, but also from other public companies,” Venkatakrishnan said. Srinivasan, Founder and Managing Partner. at debt advisory firm Rockfort Fincap.
Indian companies and banks raised about 35,000 crore rupees ($4.39 billion) from September 1 to September 7, slightly below the 45,000 crore rupees raised in August, still higher than the 33,500 crore rupees per month raised in April-July, data compiled by Reuters showed.
“We have seen big AAA-rated names exploiting the bond market, and lately quasi-equity as well,” said V. Lakshmanan, head of treasury at the Federal Bank, referring to state-owned banks and finance companies.
“If we look at corporate bond spreads, they are pricing in at levels close to government bond yields,” he added.
State-owned Power Finance Corp raised Rs 4,000 crore through 10-year bonds yielding 7.42%, while State Bank of India and HDFC Bank issued perpetual bonds to raise a total of Rs 10,000 crore at 7.75% and 7.84%, respectively.
Other AAA-rated companies like Housing Development Finance Corp, Indian Oil Corp and Small Industries Development Bank of India (SIDBI) also raised capital this month.
While SIDBI raised funds over three years and six months at 7.23%, the marginal cost of SBI’s lending rate for a three-year term is 8.00%.
“There is a decent appetite from mutual funds, especially for good quality names,” said Pankaj Pathak, fixed income fund manager at Quantum Mutual Fund.
Much of the demand is also due to the sudden repricing of yields, he said, noting that there has not been much redemption pressure so far this year, which is also encouraging investors. funds to invest in corporate debt.
Meanwhile, top-rated non-bank financial companies have also stepped up the issuance of zero-coupon bonds, which helps companies better manage their cash flow.
Zero-coupon bonds pay no interest during the term of the security and are issued at a discount to their face value. When the paper matures, investors receive the money with interest.
“For investors, this type of investment is also beneficial when interest rates are high, as there is no risk of reinvestment during the life of the bond,” added Rockfort’s Srinivasan. .
AAA-rated non-bank financial firms like L&T Finance and Tata Capital Financial Services and Tata Motors Finance have raised funds through this channel in recent sessions.
($1 = 79.7400 Indian rupees)
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