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Informist, Tuesday, May 6, 2025

 

By Vaishali Tyagi

 

MUMBAI - Fundraising through private placement of corporate bonds slowed down in April from a month before as most companies were still finalising their borrowing plans for the financial year 2025-26 (Apr-Mar), market participants said. However, the borrowing was significantly higher than a year ago due to the fall in interest rates, led by the cut in the Reserve Bank of India's repo rate.

 

According to data from the National Securities Depository and Informist, fundraising through corporate bonds fell 20% from a month ago to INR 1.03 trillion in April through the placement of 213 bonds. In March, a total of INR 1.29 trillion was raised through 291 bond issues, marking the highest monthly bond fundraising in the financial year ended Mar. 31. Fundraising through corporate bonds was at INR 380.28 billion through the placement of 245 bonds in April last year.

 

Market participants attribute the month-on-month slowdown in primary issuances to the fact that companies typically seek mandatory approvals for their business plans for the new financial year during this time. "April is typically a lull period for the corporate bond market. It marks the beginning of a new financial year, and issuers are usually in planning mode, busy securing board approvals and closing their books," Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP, said. "Since most funding needs are front-loaded into March, many corporates stay on the sidelines in April, leading to thin primary issuance and low pipeline visibility. The market sees limited fresh supply, as companies focus more on strategic capital planning than hitting the market with new deals." 

 

However, the fundraising in April surged a whopping 171% on year, thanks to a reduction in the policy repo rate by 50 basis points by the Reserve Bank of India. The RBI's Monetary Policy Committee cut the repo rate by 25 basis points each in February and April, bringing the repo rate to 6.00%. The rate cuts have boosted the confidence of issuers, which has led to fresh fundraising by big-ticket issuers in the near term.

 

"Issuances were higher (on year) this April because rates dropped significantly in April and this relief in cost of borrowing post rate cuts (by RBI) boosted confidence of issuers and the rates were down in corporate bonds, so people (issuers) took advantage," Soumyajit Niyogi, director, India Ratings & Research, said. 

 

Public sector entities continued to be the major issuers in the corporate bond market. However, the fundraising by public sector companies in April at INR 392.64 billion was sharply lower than INR 581.70 billion raised in March. Among these, REC was the largest issuer, raising INR 76.25 billion through three bond offerings, followed by the National Bank for Agriculture and Rural Development, which raised INR 70 billion through a bond reissue.

 

Fundraising by non-banking finance companies improved in April compared to the previous month. Non-banking finance companies raised INR 152.23 billion in April, higher than the INR 120.78 billion raised in March. On the other hand, fundraising by housing finance companies slumped over 60% on month in April to INR 41.68 billion. 

 

Banks were largely absent from the corporate bond market in April, with only Dhanlaxmi Bank raising INR 1.50 billion through 10-year bonds. According to Srinivasan, this is a typical trend for banks during April. "Banks generally stay away from the bond market in April as they focus on internal budgeting, liquidity planning, and finalising business plans and growth projections for the new financial year," Srinivasan said. "To ensure a smooth start, they typically ramp up certificates of deposits issuances and shore up cash reserves in March, reducing the need to tap the market immediately in April."

 

The corporate bond market saw yields fluctuating in April, with most movements skewed towards the downside. Yields significantly fell following the second rate cut by the RBI in April, after remaining relatively stable after the first rate cut in February due to tight liquidity.

 

Market participants said there was a correction in the yield curve, as yields on longer tenure papers are now higher than those of shorter tenure ones. Yields on shorter tenure papers fell 14-16 bps, while those on longer tenure fell by just 6 bps in April. In a rate cut cycle, shorter tenure papers are more attractive compared to longer tenure papers.

 

"The February rate cut was overshadowed by tight liquidity, causing yields to rise," Srinivasan said. "But the April cut sparked a rally, as the RBI boosted liquidity via variable rate repo auction, open market operation auctions, and a change in stance, Srinivasan said. Dealers said, seeing the attractive returns, a lot of investors aggressively demanded papers, pushing the yields further down.

 

Going forward, overall corporate bond issuances are likely to moderate in the coming quarters, with growth expected to be at par with last year. This trend is attributed to the lack of large capital expenditure projects and companies having a good cash flow. With commodity prices expected to remain favourable, operating margins are likely to improve for companies, reducing the need for capital financing. Non-banking finance companies are expected to tap the commercial paper market due to the sharp drop in yields, making it an attractive option, market participants said. 

The outlook for corporate bond issuances also depends on how the RBI manages liquidity. If liquidity conditions remain favourable and rate cuts continue, the market is expected to be buoyant for the corporate bond market.  End

 

With inputs from Ashna Mariam George

Edited by Saji George Titus

 

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