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Informist, Wednesday, Dec. 4, 2024

By Sachi Pandey

MUMBAI – Corporate bond yields saw a slight dip on Wednesday as investors stocked up on securities in anticipation of the Reserve Bank of India's Monetary Policy Committee meeting outcome, due on Friday, dealers said. Market participants are bracing for potential policy measures, which could include a rate cut, a cash reserve ratio adjustment, or other liquidity measures, according to dealers.

"Market participants expect the RBI to act on liquidity or possibly announce a CRR cut, with a slim chance of a rate cut. But they are pricing in all these factors now and that is why levels are easing a bit," a senior official at a large-sized mutual fund house said. 

The yield on the 10-year benchmark bond also hit 6.6782%, its lowest since Feb. 16, 2022, as these expectations crystalised and traders wanted to head into the meeting with fuller portfolios, dealers said.

The RBI faces a challenging decision following disappointing GDP growth data for Jul-Sept. However, an Informist poll of 25 economists and fund managers forecast that the MPC will likely maintain the repo rate at 6.50% for the 11th consecutive meeting.

Even if there is no rate cut, dealers also look forward to the MPC's voting pattern to see whether a rate cut is certain in February. In October, newly appointed external members Ram Singh, Saugata Bhattacharya, and Nagesh Kumar attended their first MPC meet. Of the three, Kumar voted for a 25-basis point cut, while the other members preferred a status quo.

"I think liquidity is the primary concern rather than borrowing costs. So my guess is RBI will take appropriate action on liquidity front or CRR," a fund manager at a mid-sized mutual fund house said. 

On the impact of any liquidity or CRR action on markets, the fund manager added, "CRR cut is valid for up to 3-6 months securities, beyond that it doesn't really matter. So, for up to 6 months securities we will see easing of rates especially, in CP-CDs (short-term debt papers) which can fall by 15 basis points. But for more than six months, the language that RBI uses will be very critical and maybe any kind of guidance for probable rate cuts in policies of February or April will be something that market will watch out for."

In the secondary corporate bond market, banks, mutual funds, and insurance companies were actively buying, while a few mutual funds were seen selling. Trading volumes were comparable to the previous day, with deals aggregating INR 45.78 billion were recorded on the National Stock Exchange and BSE combined at 1500 IST, compared with INR 40.35 billion on Tuesday. 

Papers issued by the REC, Bank of Baroda, HDFC Bank, Indian Railway Finance Corp., Statae Bank of India, LIC Housing Finance, Cholamandalam Investment And Fin. Co., Power Finance Corp., Sammaan Capital, Indian Renewable Energy Development Agency, National Bank For Agriculture And Rural Development, Bajaj Housing Finance, SMFG India Credit Company, Small Industries Development Bank of India, Kotak Mahindra Prime were traded the most on exchanges.

Meanwhile, the corporate bond primary market remained active. Larsen & Toubro Ltd. raised INR 15 billion through unsecured bonds maturing in 10 years, at a fixed coupon of 7.19%. LIC Housing Finance Ltd. has set a yield of 7.42% on the reissuance of bonds maturing on May 29, 2034, and accepted bids aggregating to INR 10.50 billion

On Thursday, a rare issuer, Telangana Industrial Infrastructure Corp., invited bids to raise a bumper amount of up to INR 100 billion through bonds maturing on Nov. 24, 2034. Tata Projects also plans to raise INR 2.5 billion via three-year bonds, while HDB Fianncial Services seeks bids to raise up to INR 11 billion through reissuance of two bonds with different maturities. 

Merchant bankers expect a surge in public sector entities tapping the market after the MPC meeting. "PSUs are currently gauging investor sentiment and will likely announce bids after the policy outcome," said a merchant banker.

UDAY BONDS

No Ujjwal DISCOM Assurance Yojana bonds were traded in the secondary market on Wednesday, according to the Reserve Bank of India's Negotiated Dealing System–Order Matching System.

End

Edited by Deepshikha Bhardwaj

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