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Informist, Friday, Dec. 6, 2024

By Vaishali Tyagi

MUMBAI – Following the Reserve Bank of India's Monetary Policy Committee outcome on Friday, yields on corporate bonds ended 3-4 basis points higher across tenures in the secondary market after an upward rally in government securities, dealers said. Yields on government securities rose after the Reserve Bank of India kept the policy repo rate unchanged at 6.50% and retained the 'neutral' policy stance, having adopted it in October from 'withdrawal of accommodation', dealers said. 

"G-sec (government securities) has sort of responded to the policy outcome by moving 5-6 bps upward even though there has been no rate cut and RBI did not acknowledge the GDP issue to that extent, whereas inflation, they are still focusing on," a dealer at a mid-sized brokerage firm said. "That is why, I think g-sec has gone up and even in the corporate bond it is about 5 bps higher."

The RBI's Monetary Policy Committee decided by four votes to two to leave the policy repo rate unchanged at 6.50%. The RBI lowered the cash reserve ratio by 50 bps to 4.00% of net, demand and time liabilities in two equal tranches. The cash reserve ratio has been cut by 25 bps effective from the fortnight starting Dec. 14, and by another 25 bps from the fortnight starting Dec. 28.

The rate-setting panel's decision on the repo rate was in line with expectations. In an Informist poll, 20 of the 25 respondents expected the committee to leave the repo rate unchanged for the 11th meeting in a row. The committee last changed the repo rate in February 2023.

The market widely expected that it was going to be a liquidity-led action only, and accordingly there was no rate cut as expected, which was already discounted, dealers said.

Market participants took a cautious approach on the policy outcome day, refraining from large trades in the secondary market. They awaited clarity on interest rates and the RBI's stance. "Investors hesitated to make big bets without clear guidance," the dealer quoted above said.

Dealers said volumes remained relatively low with most activity concentrated on shorter-tenure papers. On Friday, deals aggregating INR 77.15 billion were recorded on the National Stock Exchange and BSE combined, compared with INR 104.22 billion on Thursday. 

In the secondary market, mutual funds were mainly active on the selling side, and traded in papers maturing in shorter tenure, dealers said. A handful of insurance companies, pension funds and state-owned entities were active in the buying side but with limited activity, a dealer at another mid-sized brokerage firm said. 

Papers issued by the REC Ltd., HDFC Bank, MSRDC Sea Link, Power Finance Corp., Bharti Telecom, Shriram Finance, Mahindra and Mahindra Financial Services, and Kotak Mahindra Prime were traded the most on exchanges.

On Friday, the primary market remained slightly dull. Bajaj Finance raised INR 10 billion through bonds maturing on Mar. 26, 2027, at a yield of 7.75%. Kotak Mahindra Prime raised INR 5 billion by issuing two bonds of different maturities. The company set a yield of 7.75% on the reissue of bonds maturing on Feb. 28, 2028, and accepted bids aggregating to INR 1.25 billion. Originally, the company had issued these bonds in February 2023 at a coupon of 8.05%.

Market participants are expecting a pickup in activity in the coming week following clarity on the interest rate trajectory, but this momentum is expected to be for a shorter time. "Investors now have some clarity, so we're expecting a pickup until some new data points like inflation or other events arrive," said a dealer at a mid-sized brokerage firm. "A lot of non-banking finance companies are also coming to the market next week," the dealer added. "Aditya Birla and Sundaram Finance will be there, and I think they should come for bidding sometime next week only, but I don't know when exactly, because we are not a part of the deal, so I am not sure."

UDAY BONDS

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

End

Edited by Tanima Banerjee

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