Money & Banking

Sluggish bond market is the latest headache for Indian firms

Bloomberg January 20 | Updated on January 20, 2020

Prospects of flat issuance is bad news for government’s efforts to revive sagging growth   -  Chunumunu

Prospects of flat issuance is bad news for govt’s efforts to revive sagging growth

India needs a bigger bond market now more than ever, to help get funds to cash-strapped companies cut off from their shadow lenders by a crisis in that sector.

But a Bloomberg survey shows that sales of local rupee corporate notes will grow only 2 per cent this year, a similar rate to 2019 that is historically low. The country’s corporate bond market remains small compared with other major economies, and outstanding rupee issuance amounts to the equivalent of about $540 billion, less than 10 per cent of what is due in China.

Prospects of flat issuance is bad news for Prime Minister Narendra Modi’s efforts to revive sagging growth, with tight credit conditions feeding a vicious cycle of reduced consumption and investment.

Smaller companies — which represent about half of the economy — are struggling with a double blow from a funding squeeze at shadow lenders, and investor wariness of anything but top-rated debt, often meaning government-backed ones.

Companies will raise around ₹7.5 lakh crore through domestic bonds this year, according to the average estimate from 11 of India’s top corporate bond arrangers, surveyed by Bloomberg. That’s an increase of about 2 per cent on sales in 2019, and compares with a gain of about 28 per cent a year on average from 2014 to 2017, according to data compiled by Bloomberg. A stalling in issuance also undercuts attempts by Finance Minister Nirmala Sitharaman and predecessors to expand the country’s corporate bond market to better distribute credit risks and wean reliance off bank loans.


All the news for the market isn’t bad, however, with some arrangers expecting State-owned companies to boost issuance to help push forward government investment plans. There are also some signs of improvement at the non-banking finance sector, following a string of central bank rate cuts.

Here are some rupee bond arrangers outlooks for the market for this year:

Shameek Ray, Head of debt capital markets, ICICI Securities Primary Dealership, said: “Overall rupee-denominated bond sales could show no or low growth as the trend for many companies to borrow through bank loans or from overseas markets may continue for some time. Government’s large infrastructure spending target and kick-start of capex will be routed through these companies and hence I see a strong year of issuance from them. ”

Sandeep Bagla, Associate Director, Trust Capital Services India, expects most of the borrowing by companies would be to meet refinancing needs or for working capital requirements.

According to Ashish Ghiya, Managing Director, Derivium Genev, overall bond issuance volumes will increase, with more diverse issuers raising debt capital market funding.

Published on January 20, 2020

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