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Corporates have mopped up a record ₹4-lakh crore from the bond market between April and September 17. This is the highest amount raised via rupee bonds in the beginning of the year since 2015, according to Bloomberg data.
Covid-hit corporates rushed to raise funds from the bond market as risk-averse banks refused to lend due to fear of default. The unprecedented lockdown and subsequent hit on economy has taken a heavy toll on India Inc.
RBI stimulus
The stimulus announced by RBI enhanced liquidity and pulled down the spreads on AAA-rated three-year corporate bonds to the lowest level in about 15 years. In March, the RBI also hiked the limit for foreign portfolio investors’ (FPI) investment in corporate bonds to 15 per cent of the outstanding stock for FY21.
At present, FPIs can invest ₹3.17-lakh crore in Indian corporate bonds. With the enhanced limit, they can hold ₹4.29-lakh crore of corporate bonds for the half-year ended September and ₹5.41-lakh crore for the half-year ending March 2021.
The RBI had also allowed FPI to hold more than 20 per cent of the corporate bond portfolio to a single corporate, including exposure to entities related to the corporate.
Vinay Pai, Head-Fixed Income, Equirus Capital, said the fiscal year began with top-notch corporates raising ₹1-lakh crore from the first round of TLTRO (Targeted Long Term Repo Operations), followed by the second round TLTRO for NBFCs, and later through the partial credit guarantee, which was broadlined and well distributed.
“Fund investments was dominated by AAA corporate bond and PSUs due to liquidity and acceptability. We see a reasonable shift to AA+ and AA up to three years for yields picking up as the returns to investor are low currently,” he added.
Low credit offtake
With low credit offtake, the trend of corporates tapping the bond market space would continue, taking advantage of the lower interest rates scenario to replace high-cost debt until there is substantial uptake in growth reflecting better GDP numbers, said Pai.
With ample liquidity in the system, the cost of borrowing for well-rated companies from the bond market was much lower than what banks would have charged, said a senior executive of a company.
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