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Informist, Wednesday, Nov. 26, 2025

 

By J. Navya Sruthi and Vaishali Tyagi

 

MUMBAI/NEW DELHI – The corporate bond market witnessed an unexpected turn of events Tuesday as two major regular issuers withdrew their planned offerings on a heavy supply day, disappointing investors who were prepared to deploy funds at higher coupons. Both National Bank for Agriculture and Rural Development and Power Finance Corp. Ltd. pulled back their issues totalling INR 100 billion, which was 40% of the total INR 251.10 billion issuances scheduled for Tuesday.

 

The withdrawal of bonds reflected a clear tug of war between issuers and investors, which ultimately tilted in favour of issuers who chose to pull back rather than meet the higher coupon demands in the primary market. Instead of agreeing to those levels, companies decided to hold back issuance for more favourable conditions, leading to scrapped deals from marquee names on a heavy-supply day.

 

"Issuers were unwilling to raise funds at the elevated coupon levels at which investors were keen to lock-in higher-yielding papers," a dealer at a brokerage firm said. 

 

NABARD had planned to raise INR 70 billion through Feb. 23, 2029 bonds, while PFC wanted to invite bids to raise INR 30 billion via a reissue of bonds maturing Apr. 13, 2029.

 

Issuers were expecting lower coupons after the Reserve Bank of India Governor Sanjay Malhotra Monday said India's recent macroeconomic indicators suggest that there was potential for more rate cuts. The Monetary Policy Committee had clearly stated in the October policy statement that there is potential to cut rates further, the RBI governor said in an interview with the ZEE Business news channel. The central bank will hold its bi-monthly policy meeting on Dec. 3–5.

 

Market participants said issuers expected corporate bond yields to fall, in line with the sharp decline in government bond yields, after the RBI governor's dovish comments. Expectations of a 25-basis-point cut surged following his comments, dragging the most traded 6.33 35 gilt yield down 5 bps, its biggest single-day drop since Oct. 1.

 

"Issuers have turned noticeably optimistic on coupon levels after the RBI Governor's remarks on Monday, which pulled government bond yields down sharply and strengthened expectations that corporate bond yields, especially at the shorter end, could soften further — potentially slipping below 6.70% and even towards 6.65%," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP.

 

"Investor demand has been strong for all issuances across tenors, and transactions such as Sundaram's three-year, SIDBI's three-year, PFC's 10-year and Axis Bank Ltd.'s 10-year infrastructure bonds met issuer pricing expectations," he said. "However, both PFC and NABARD decided to withdraw their three-year issuances because the pricing discovered through bids did not align with what they were looking for. With the market expecting further easing, issuers preferred to wait and reassess pricing after the monetary policy instead of closing deals at levels they were not fully comfortable with."

 

Both PFC and Axis Bank raised funds through 10-year bonds while PFC's reissue and NABARD issuance were short-term bonds. PFC set a coupon of 7.08%, payable annually, and accepted bids aggregating INR 30 billion. Axis Bank set a coupon of 7.27%, payable annually, and accepted bids aggregating INR 50.00 billion Tuesday. Dealers said the coupons of PFC and Axis Bank were in line with the market expectations.

 

Most of the key issuers had announced bidding dates for their bond issues last week amid uncertainty around the RBI rate cut. A few public sector undertakings, a private bank, and many non-banking finance companies had all announced bond issues, and this is why the primary market was crowded Tuesday. Corporate bonds aggregating INR 251.10 billion were scheduled for sale Tuesday as issuers wanted to capitalise on expectations of more favourable borrowing costs.

 

Investors had been closely tracking issuances from state-owned entities. NABARD's INR-70-billion, three-year bond was among the most eagerly anticipated, while Axis Bank's 10-year infrastructure bond also drew strong interest, being the bank's first infra bond this financial year. Axis Bank ultimately raised INR 50 billion at a 7.67% coupon, which was in line with market expectations.

 

According to market participants, the scrapping of some deals was also influenced by the inability of demand to absorb the heavy supply. "There was a good quantum of supply, but demand was not as borrowers expected," a dealer at a brokerage firm said.

 

Going forward, merchant bankers expect activity in the primary market to pick up after the December monetary policy outcome. A dealer from a brokerage firm said many issuances are lined up and banks are expected to tap the market post MPC meeting, especially if rates move lower.

 

"Issuers will pull back as more investors are expecting a rate cut now," Killol Pandya, head of fixed income at JM Financial Mutual Fund, said. On the other hand, investors are likely to bid for higher coupons ahead of the anticipated rate cut, he added.

 

The pull-back of bonds also impacted secondary market yields, particularly on three-year bonds. Yields on three-year papers eased by around two basis points due to short-covering, dealers said, as investors who had sold earlier bought back bonds after NABARD's withdrawal.

 

This momentum is expected to continue in the three- and five-year segments in the secondary market of the corporate debt market. Pandya said a rally is likely in these maturities, with yields expected to fall another two to three basis points ahead of the RBI's MPC meeting.  End

 

Edited by Deepshikha Bhardwaj

 

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