In what could be considered as a sign of investment demand gathering steam, India Inc raised ₹80,000 crore more via corporate bond issuances in the first nine months (9M) of FY24 vis-a-vis year ago period.

Corporate bond issuances during 2023-24 (from April 1 up to November-end 2023) were 15 per cent higher year-on-year (yoy) at ₹6.1-lakh crore compared with ₹5.3-lakh crore a year ago, per RBI data.

Easing long term yields and relative stability in the bond market amidst a healthy economic outlook has prompted issuers to raise funds for investments through debt issuances, per an article “State of the Economy” in RBI’s latest monthly bulletin.

For example, the interest rate on a “AAA” rated corporate bond issuance has declined 15 basis points to 7.82 per cent during the January 15, 2024-February 14, 2024 period against 7.97 per cent during the December 18, 2023- January 12, 2024 period.

The article, put together by RBI’s economic researchers, underscored that global financial conditions are becoming easier, mainly driven by equity market exuberance that is stretching valuations and compression in corporate bond spreads.

In fact, corporate bond investors are snapping up new issues worldwide, locking in elevated yields ahead of what they believe as imminent interest rate cuts.

Investor preference is tilted in favour of investment grade issuances, with a predominant portion picked up by banks and financial companies, the researchers said.

Sustained demand

Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, opined that corporate bond market yields came down sharply compared to bank loan rates on expectation of future rate cuts. This led to an increase in bond issuances on a sustainable basis.

He noted that there has been sustained demand for corporate bonds from investors, including institutional investors such as mutual funds, insurance companies, and pension funds.

“Large issuances by HDFC, NABARD, PFC, REC, SBI and other large banks, NaBFID, Reliance Industries, etc. could be attributed to the overall increase in bond issuances this year.

“Corporations often utilise bond issuances as a means to raise capital for various purposes, including financing mergers and acquisitions,” Venkatakrishnan said.

RBI Governor Shaktikanta Das, in his February 8th bi-monthly monetary  policy statement, observed that investment cycle is gaining steam, aided by sustained thrust on government capex (capital expenditure); increasing capacity utilisation; rising flow of resources to the commercial sector; and policy support from schemes such as production linked incentive (PLI). 

“Revival in private corporate investment is also underway. Our survey suggests that investment intentions of private corporates remain upbeat and both services and infrastructure firms are optimistic about overall business conditions,” Das said.