MUMBAI: Companies are lining up bonds sales after the repo rate cut by the RBI increased attractiveness in terms of borrowing costs for companies, which could raise more than Rs 3 lakh crore this financial year compared with Rs 2.5 lakh crore in the previous fiscal. For investors too, the current levels are good to catch before rates fall further.
The RBI cut its key repo rate by a quarter percentage points to 7.75% on January 15, after a gap of 20 months as both the retail inflation came within the trajectory marked out by RBI.
Yield on the 10-year government bond has declined about 28 basis points in a month to 7.70% from about 7.98% around December end. Yet, despite a rate cut all major banks have held their base rates unchanged.
“From an issuer’s perspective there is about 200 bps difference between what he would have to pay to a bank and the rate available in the market on a three-year borrowing,’’ said Shashikant Rathi, head of debt capital market at Axis Bank.
“For investors, the current levels are attractive since RBI has indicated the direction rates will take now that inflation has been curtailed.’’ Market participants see companies such as the NHB, Indian Railway Finance Corp, Power Grid Corp, IFCI and Rural Electrification Corp tapping the market. Even smaller issues such as Srei Infrastructure, Kosamattam Finance Ltd, Muthoot Finance Ltd, Manappuram Finance have filed their prospectus to to raise money at a time of their choice.
“There’s been an increase in interest from foreign investors too since they can no longer buy any significant quantity of government bonds, having exhausted the available limits,’’ said Ajay Manglunia, head of fixed income at Edelweiss Capital.
“The rise in demand has also narrowed the spread between government bonds and corporate bonds to less than half.’’
Overseas funds acquired $42.4 billion of Indian bonds in 2014, against $12.13 billion in 2013. Foreigners have already lapped up $4.24 billion of debt in January so far. There is a strong demand from PSU banks too seeking to beef up their capital adequacy, and public sector enterprises planning investments, says Manglunia.
Demand is expected to remain robust with an outlook of benign oil prices, a central bank determined to keep inflation under control and rising demand for funds from Indian firms as economy begins to start picking up.