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Informist, Friday, Jan. 24, 2025

By Ashna Mariam George 

MUMBAI – The 12-month high systemic liquidity deficit recorded on Thursday led banks to sell bonds on Friday, thereby marginally pushing up yields on 3-year corporate bonds, dealers said. Yields on bonds maturing in five years and 10 years remained largely steady due to the absence of fresh triggers, they added. 

"Major volume was concentrated in the one-to-three year segment," a dealer at a mid-sized brokerage firm said. While banks sold papers, mutual funds were on the buying side, dealers said.  

On Thursday, the net liquidity injected by the Reserve Bank of India--a proxy for systemic liquidity conditions--rose to INR 3.16 trillion, the highest level since Jan. 24, 2024, against INR 2.88 trillion on Wednesday.

"Liquidity is going tight, and it will remain like this until and unless there is a proper way to address the issue, like an OMO (open market operations) or FX (foreign exchange) swap," a dealer at a mid-sized mutual fund house said. "Until any such measures, core liquidity will not be impacted with VRR (variable rate repo) auctions or CRR (cash reserve ratio) cut."

In the secondary market on Friday, deals aggregating to INR 82.99 billion were recorded on the National Stock Exchange and BSE combined, as compared to INR 84.61 billion on Thursday. Papers issued by Rural Electrification Corp., Power Finance Corp., Indian Renewable Energy Development Agency, Small Industries Development Bank of India, Bank of Baroda, Larsen and Toubro, LIC Housing Finance, Godrej Industries, National Bank for Agriculture and Rural Development, Bharti Telecom, and HDB Financial Services were traded the most on exchanges. 

Going ahead, market participants are awaiting the Union Budget, scheduled on Feb. 1. "The fiscal deficit target is going to be lower than last year (current financial year ending March)," a dealer at another mid-sized brokerage firm said. "The market has already priced in the lower fiscal deficit numbers." On Jan. 15, Reuters reported that the government might project fiscal deficit at 4.5% of GDP in 2025-26 (Apr-Mar), and expects its fiscal gap to fall 10-20 basis points below the 4.9% of GDP budgeted for FY25.

According to an Informist poll of 18 economists, fund managers, and treasury heads, the government's net market borrowing is seen shrinking for the second straight year in FY26 as it continues fiscal consolidation. The Union Budget may cut the government's estimated net borrowing in FY26 to INR 11.20 trillion from INR 11.63 trillion this fiscal, the poll showed.  

On the other hand, primary activity remained dull on Friday. Dealers expect more public sector entities and non-banking financial companies to raise funds through the corporate bond market in the coming weeks to meet their funding targets and requirements. 

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 75.90 million were traded at a weighted average yield of 7.0083-7.1610%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed on Friday.

* INR 47.00 million of Haryana's 2025-2026 bonds were traded at 7.0413-7.1610%

* INR 12.00 million of Telangana's 2032 bonds were traded at 7.1610%

* INR 16.90 million of Rajasthan's 2025-2026 bonds were traded at 7.0413-7.0510%

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Tanima Banerjee

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