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Informist, Monday, Dec. 9, 2024

By Ashna Mariam George

MUMBAI – After rising by 3-4 basis points on Friday, yields on corporate bonds ended steady in the secondary market on Monday as activity was largely concentrated in the primary market, dealers said. "The levels were more or less the same after Friday's wide reaction to MPC (Monetary Policy Committee outcome)... there were major primary deals today," a dealer at a mid-sized private sector bank said.

Secondary market yields of corporate bonds ended 3-4 bps higher across tenures on Friday after the Reserve Bank of India's Monetary Policy Committee left the policy repo rate unchanged at 6.50%. However, the central bank had reduced the cash reserve ratio of banks by 50 basis points to 4.0% of net demand and time liabilities. The cut, which will be in two equal tranches from the fortnight beginning Dec. 14, will release primary liquidity of about INR 1.16 trillion to the banking system.

On Monday, secondary market deals aggregating to INR 77.52 billion were recorded on the National Stock Exchange and BSE combined, almost flat from INR 77.15 billion on Friday. Mutual funds and banks were active on both buying and selling sides, dealing in papers maturing in two to three years, dealers said. 

Papers issued by REC, HDFC Bank, ICICI Home Finance Co., Cyqure India, LIC Housing Finance, National Bank For Agriculture And Rural Development, Tata Capital Financial Services, Small Industries Development Bank of India, and Shriram Finance were traded the most on exchanges.

The primary market, on the other hand, was quite active with big-ticket issuer Power Finance Corp. making a return to the primary market after a gap of two months. Besides Power Finance Corp., DME Development also tapped the market to raise funds, which kept market participants busy. 

Power Finance Corp. raised INR 62.52 billion through two bonds. Market participants said Power Finance Corp.'s bond issue saw "aggressive" demand from long-term investors as the state-owned entity tapped the market after a gap of over two months. "PFC saw really good demand from investors such as EPFO (Employees' Provident Fund Organisation) and LIC (Life Insurance Corp. of India) and the cutoff came lower than market expectation of 7.15%-7.25%," a dealer at a mid-sized brokerage firm said.

The public sector entity raised INR 32 billion through bonds maturing Jan. 16, 2040 at a coupon of 7.11% and INR 30.52 billion through bonds maturing on Jan. 15, 2035 at a coupon of 7.10%. According to the bid book accessed by Informist, the 2040 bond got 65 bids worth INR 61.25 billion in the range of 7.06%-7.30% coupon and 2035 bond got 69 bids aggregating to INR 60.02 billion in 6.90%-7.50% coupon range. 

However, the first bond issuance of DME Development in the current financial year, saw tepid demand from investors. 

DME Development raised INR 7.75 billion through its green bonds maturing in 10 years at a semi-annual coupon of 7.23%. The issue had a base size and greenshoe option of INR 5 billion each. 

According to the bid book accessed by Informist, the issue garnered only 36 bids worth INR 26.00 billion in the range of 7.09%-7.49% coupon. Market participants said the issue could not garner major demand as it was not a frequent issuer. "There was PFC today, and since DME is a once-in-a-while issuer, it won't get a PFC kind of demand," a fund manager at a mid-sized mutual fund house said. Dealers also said the issue saw tepid demand as the bonds are not liquid in the secondary market. 

"We were expecting somewhere close to 7.30% for the full amount... so the cutoff for the amount they raised is as per market levels," the private sector bank dealer quoted above said. 

The primary market is expected to witness more issuances in the upcoming weeks, market participants said. "You will start seeing major supply since there is better clarity on liquidity and repo rate," the fund manager quoted above said. "There will be more demand for longer-tenure papers... PSUs (Public Sector Undertakings) have started preferring long-term bonds... they won't mind issuing more longer tenure papers if they get good levels."

UDAY BONDS

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

Edited by Saji George Titus

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