By Dharamraj Dhutia and Khushi Malhotra
MUMBAI (Reuters) -India’s corporate debt market is witnessing a rebound as renewed bets of steep rate cuts boost demand and encourage firms to opt for bonds over traditional funding sources, analysts say.
Bond issuances fell 40% quarter-on-quarter to 2.03 trillion rupees ($23.1 billion) in July-September, data from aggregator Prime Database showed. But since then, firms have raised around 500 billion rupees, with bankers predicting total supply in October could top 1 trillion rupees.
Earlier this week, Bharti Telecom raised 105 billion rupees in the largest bond issue of the fiscal year, while State Bank of India on Friday raised 75 billion rupees.
The hefty issues signal a turnaround that could pave the way for a record year in corporate debt fundraising, analysts said.
RECORD BOND SUPPLY
“Periods with multiple rate cuts have led to a significant rise in corporate bond issuances, supported by favourable pricing in bonds,” said Vinay Pai, head of fixed income at investment banking firm Equirus Capital.
“The combination of an accommodative rate environment and strong investor demand is likely to make this another record year for the corporate bond market, and we expect supply to exceed 12 trillion rupees.”
Debt instruments like bonds and commercial papers have become increasingly attractive for raising capital, said Nikhil Aggarwal, founder and group CEO of bond trading portal Grip Invest.
DEMAND SEEN STRONG
Despite expectations of supply doubling in the second half, investors are confident it will be absorbed, particularly as mutual funds focus on short-term papers.
“Investors want to lock in spreads of 60 to 100 basis points over comparable government securities. Given attractive spreads, easy liquidity, and expectations of a rate cut from RBI, investors should absorb the supply of corporate papers,” said Murthy Nagarajan, head of fixed income at Tata Mutual Fund.
The spread between AAA-rated corporate bonds and government bonds currently ranges from 70 to 90 basis points.
Kotak Mahindra Mutual Fund, which is overweight on three-to-five-year corporate bonds, plans to increase exposure in this segment.
“With expectations of rate cuts along with comfortable liquidity, corporate bond spreads in the short-term bucket over corresponding government bonds are appealing,” its fixed income head Abhishek Bisen said.
($1 = 87.9230 Indian rupees)
(Reporting by Dharamraj Dhutia and Khushi Malhotra; Editing by Mrigank Dhaniwala)
