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Informist, Monday, Oct. 21, 2024

By Ashna Mariam George

MUMBAI – After Reserve Bank of India Governor Shaktikanta Das' comments on Friday doused all hopes of a rate cut in December, yields on corporate bonds climbed 3-5 basis points across tenures in the secondary market, dealers said. "See, there was panic after the governor said it was too early to confirm (a rate cut in December), and the market overall reacted today (Monday), a dealer at a mid-sized private sector bank said. "Over a period of time, market will reverse."

At the Bloomberg India Credit Forum on Friday, Das said it would be "premature" and "risky" to cut the policy rate at this stage and that the RBI's decision would depend on incoming data points.

The governor's comments prompted sales by market participants, who unwound bets on a rate cut by the RBI at its next policy meeting in December, dealers said. "Some sections of the market were expecting a rate cut in December, given the stance change in the October meeting, but as the governor clearly said, you cannot expect a rate cut with such high inflation that is above 5%, and at that moment, the market reacted," a dealer at a mid-sized brokerage firm said.

On Oct. 9, the Reserve Bank of India's rate-setting panel changed its stance to 'neutral' from 'withdrawal of accommodation,' while keeping the policy repo rate unchanged at 6.50%.

At the forum, Das also pointed out that foreign investors were using only 15% of the investment capital in corporate bonds and emphasised the need to focus on creating a robust secondary corporate bond market. He highlighted the need for more institutional investors in the bond market. However, market participants said they did not expect Das' comment to indicate any major regulatory changes in the offing. "Developing the corporate bond market has been the plan for all regulators and governments, so we keep hearing this every now and then," a dealer at another mid-sized private sector bank said. "But, yeah it is a good news and hope it will help in the long term."

In the secondary market of corporate bonds on Monday, deals worth INR 59.13 billion were recorded on the National Stock Exchange and BSE combined, against INR 50.99 billion on Friday. Mutual funds were active on the selling side, while banks were active on the buying side, trading papers maturing in shorter tenures, dealers said.

Papers issued by the National Bank for Agriculture and Rural Development, Power Finance Corp., Small Industries Development Bank of India, Export Import Bank of India, HDFC Bank, and IIFL Finance, were traded the most on exchanges.

The primary market was dull Monday, with no major deals being recorded. However, market participants said they expect more primary issuances in the upcoming weeks. "The new liquidity window will help the corporate bond market in the long term, and give more liquidity to the secondary market," said the dealer quoted earlier. On Tuesday, Small Industries Development Bank of India plans to raise up to INR 60 billion through bonds maturing on Apr. 10, 2028. LIC Housing Finance will also tap the market on Tuesday to raise up to INR 30 billion through bonds maturing on Feb. 11, 2028.

Last week, the Securities and Exchange Board of India introduced a liquidity window framework to boost activity in the corporate bond market. The liquidity window will allow issuers to offer investors a periodic put option on debt securities, offering an exit to those worried about the illiquid nature of corporate bonds.

UDAY BONDS

In the secondary market, Rajasthan's Ujwal DISCOM Assurance Yojana bonds worth INR 55 million, maturing in 2026, were traded at a weighted average yield of 7.163%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed.

BENCHMARK LEVELS FOR CORPORATE BONDS:

Edited by Avishek Dutta

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