MUMBAI, August 10 (IANS) Corporate bond issuance rose more than 16 percent month-on-month to Rs 58,452 crore in July as the yield on this instrument eased.
Banks and companies raised Rs 58,452 crore in July versus Rs 50,099 crore in June, data from the Prime database shows. Since the start of this calendar year, issuance has remained the highest in March with the company raising Rs 81,580 crore.
Of the total amount collected in July, Housing Development Finance Corp (HDFC) raised the highest amount at Rs.14,111 crore, followed by Small Industries Development Bank of India (SIDBI) which raised Rs.6,905 crore, and housing firm LIC Finance at Rs. . 6,150 crore, National Agricultural and Rural Development Bank (NABARD) raised Rs 3,000 crore and Bajaj Housing Finance raised Rs 2,050 crore, Prime database data show.
The five largest issuers raised more than 55 percent of total funds in July
“Corporate bond issuance has recently rebounded especially after a long period of rate cuts, in line with the decline in G-Sec yields, which after hitting 7.65 percent in June, ahead of this month’s 7.12 percent policy,” said Ajay Manglunia. . MD and Head of Institutional Fixed Income at JM Financial.
Yields on these instruments have fallen by 10 to 18 basis points over the past month as a result of falling government bond yields. Yields fell slightly as international crude oil prices eased and inflation concerns eased as commodity prices also fell.
All these factors drive investor sentiment. Further rate hikes led by various central banks will be data driven and more situational. This increases the demand for paper and increases investor appetite.
Currently, yields on three-year corporate bonds range from 7.20 percent to 7.23 percent, and yields on five-year and 10-year corporate bonds range from 7.38 to 7.43 percent and 7.60 to respectively. 7.68 percent.
“Compared to June, government bond yields fell in July due to anticipation of RBI policy in August. Corporate bond yields follow government bond yields too closely. The decline in global yields over this period has also had a positive impact on our yield moves,” said Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincorp, a Mumbai-based debt advisory firm.
Going forward, market participants expect issuance to increase due to rising interest rates, and the systematic withdrawal of liquidity from the banking system will lead to a recalibration of lending rates. Banks that previously lent at lower interest rates than the credit market had to raise their interest rates, causing issuers to return to the market in search of better interest rates.
Last week, the central bank’s monetary policy committee raised interest rates by 50 basis points to 5.40 percent. It was the third straight rate hike by the central bank this year, after 40 basis points in May and 50 basis points in June. With a 50 basis point increase, the RBI raised the key interest rate by 140 basis points from May this year.
“Following the RBI’s policy, the market became hawkish on the 50 basis point increase in repos. To anticipate the withdrawal of liquidity from the system, banks inevitably have to increase their lending rates significantly. Issuers can now switch to issuing corporate bonds,” added Srinivasan.
Meanwhile, with the RBI’s restrictive policy, fund managers expect interest rates to rise further.
“Expect interest rates to be in the benchmark 7.15-7.50 percent range in the next quarter before taking further clues on inflation and interest rate action,” Manglunia added.