Uncertainty over the election outcome and the Union Budget, in addition to the absence of HDFC Ltd, saw corporate bond issuances falling by over a third in the April-June period compared to the same period of the previous year.
According to Prime Database, corporate bond issuances dropped 36 per cent in the first quarter of the current financial year to Rs 1.88 trillion from Rs 2.95 trillion during the same period of the last financial year.
One of the primary reasons behind the increase in issuances in the previous financial year was the heavy borrowing by HDFC until June, prior to its merger. The erstwhile housing finance company raised Rs 46,062 crore in the April-June period of FY23. HDFC, which was merged with HDFC Bank from July 1, 2023, was the third highest issuer of corporate bonds in the financial year 2023-24, after Nabard and REC.
HDFC’s large fund raise stimulated the bond market, creating a momentum that continued into the subsequent months. Despite a slight market downturn in July due to rising US Treasury yields, the market picked up again when liquidity dried out, said market participants.
“Several factors contributed to the subdued bond issuances in Q1 2024-25, including the Lok Sabha elections, expectations of a sharp drop in yields due to anticipated rate cuts, and India’s inclusion in the JP Morgan Bond Index. Last year, HDFC’s heavy borrowing ahead of its merger further boosted the overall issuance amount during that quarter,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
Srinivasan said there has been a significant drop in private sector bond issuances with companies like Delhi International Airport, L&T, Dabur, Tata Power, Century Textiles, and Torrent Power, which tapped the bond market in Q1 of the last financial year, not issuing bonds this time.
Power Finance Corporation raised Rs 12,281 crore in Q1 of last year compared to Rs 3,178 crore this time.
During the quarter, REC Ltd led the mobilisation chart with a Rs 16,558 crore mop-up, followed by Bajaj Finance at Rs 13,006 crore, National Housing Bank at Rs 12,200 crore, State Bank of India at Rs 10,000 crore, and National Bank for Agriculture and Rural Development (Nabard) at Rs 9,558 crore. These top five issuers raised around 67 per cent of the total amount raised during the quarter.
Nabard was the largest issuer in the previous financial year with Rs 65,393 crore raised over the year.
“If you look at the tenure breakup, the supply is pretty much concentrated in the one to three-year segment compared to longer terms. Typically, we see more supply in the five to ten-year segment, but it’s been quite dry in that area because mutual funds are pretty active only in that segment. They are not buying anything longer,” said Dhawal Dalal, president and chief investment officer – fixed income at Edelweiss Asset Management Limited.
However, the market expects the situation to improve with a significant increase in infrastructure bond issuances by banks and other major issuers who missed the first quarter. This anticipated surge in issuance is likely to stabilise the market and meet the pent-up demand from investors seeking high-quality, long-term bonds. SBI has already raised Rs 20,000 crore through infrastructure bonds in the current financial year. Another public sector lender, Canara Bank, is also planning to raise Rs 10,000 crore through similar bonds.
First Published: Jul 10 2024 | 8:40 PM IST