By Manish M Suvarna
Issuances of corporate bonds jumped 65% month-on-month in August as some AAA-rated state-owned firms raised a big quantum of funds. Funds raised by corporate bonds elevated to Rs 49,848.25 crore in August, in opposition to Rs 30,080.86 crore in July, in accordance with Sebi information. The fund-raising in August is the very best by firms for the reason that begin of FY22.
State-owned firms that raised funds embody Power Finance Corporation, Food Corporation of India, National Highway Authority of India, Indian Railway Finance Corporation, National Bank for Agriculture and Rural Development. Of the full borrowing, 53.56% was raised by these firms.
“In the August MPC meeting, there was a dissent vote on maintaining a neutral stance. Market participants were awaiting the meeting minutes to understand the exact thought process, and hence there was lesser interest from buyers,” stated Anand Nevatia, fund supervisor at Trust Mutual Fund.
Market members stated the urge for food for fund-raising by long-term bonds was decrease in the market and most issuers switched to shorter tenure papers attributable to agency demand from mutual funds in that section.
“Mutual funds have been witnessing flows in schemes having maturity profile of up to 5 years. As a result, issuers have been issuing bonds in the 2-5-year maturity segment,” Nevatia stated.
Since June, inflows have improved considerably into shorter-end funds resembling length fund, ultra-short-term fund, liquid fund, and so forth. This has additionally led to a fall in yields on shorter tenure papers, whereas longer tenure paper yield remained vary certain.
Additionally, surplus liquidity in the banking system has additionally dragged yields on shorter tenure papers down. Currently, liquidity in the banking system is estimated to be in a surplus of round Rs 8.41 lakh crore.
In mid-August, yields on a shorter-tenure corporate bond maturing in lower than 5 years eased practically 5-10 foundation factors in the secondary market. Currently, the shorter tenure bond yields are ranged between 5.05% and 5.10%, and that on 10-year bond is buying and selling at 6.88-6.95% in the secondary market.
“Yield movement has largely been flow driven. High CPI and likely normalisation of liquidity have prevented traders from aggressively building up positions,” Nevatia stated.