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Informist, Monday, Feb. 3, 2025

By Ashna Mariam George 

MUMBAI – A slightly lower fiscal deficit target for 2025-26 (Apr-Mar) announced in the Union Budget presented on Saturday, along with the hope of policy rate cut, pushed yields on corporate bonds lower in the secondary market, dealers said. While yields on three-year and five-year bonds fell by around three basis points, the yields on 10-year bonds remained largely steady. "Longer tenure papers were getting hardly dealt, they (insurance companies and pension funds) are in a wait-and-watch mode," a dealer at a mid-sized brokerage firm said. 

The Union Budget pegged fiscal deficit at 4.4% of GDP for FY26, slightly below the 4.5% of GDP estimated in an Informist poll. The fiscal deficit target for FY25 has also been lowered by 10 bps to 4.8% of GDP. "The budget is quite balanced and the market is giving a thumbs-up to it," a dealer at a mid-sized brokerage firm said. "The market is happy about the fiscal prudence in the budget." 

Market participants now believe the Union Budget is a harbinger of a potential rate cut which would be announced in the Reserve Bank of India's Monetary Policy Committee meeting scheduled for Wed-Fri. According to an Informist poll, the Monetary Policy Committee will lower the repo rate by 25 basis points to 6.25%, the first time in nearly five years. RBI Governor Sanjay Malhotra will announce the committee's decision on Friday. 

"We look at a 25 bps rate cut...liquidity has been infused, and major economies have already started cutting or have cut (rates) a few quarters back and now holding," a senior manager at another mid-sized brokerage firm said. "The Rupee is weak and the cost of borrowing also looks high now." On Monday, the Rupee ended at a record closing low of 87 a dollar. 

In the secondary market of corporate bonds, trade volume fell on Monday, with deals aggregating to INR 110.78 billion being recorded on the National Stock Exchange and BSE combined, against INR 167.95 billion on Friday. While mutual funds were on the buying side, banks were active on the selling side, dealers said. Most of the activity was concentrated on the shorter end of the curve, they added.

Papers issued by Larsen And Toubro, REC, HDFC Bank, LIC Housing Finance, Power Finance Corp., Telangana State Industrial Infrastructure Corp., National Bank For Agriculture And Rural Development, Export Import Bank of India, Small Industries Development Bank of India, National Housing Bank, and Shriram Finance were traded the most on exchanges. 

The primary market of corporate bonds was dull on Monday with no major deals being recorded. On Tuesday, two public sector entities--Power Finance Corp. and National Bank for Financing Infrastructure and Development— will tap the market to raise funds through their respective bond offerings. 

NaBFID has invited bids on Tuesday to raise up to INR 50 billion through bonds maturing on Feb. 3, 2040. Dealers expect the issue to bag a coupon in the range of 7.20-7.25%. 

Power Finance Corp. Ltd. will tap the market to raise up to INR 50 billion through two bonds of different maturities. The power finance company plans to raise up to INR 25 billion through bonds maturing on Jan. 15, 2035. Market participants see the coupon at around 7.20-23%. Power Finance Corp. also plans to raise up to INR 25 billion through bonds maturing on Jan. 16, 2045. The issue is expected to have a cut-off in 7.18-7.20% range. 

Market participants expect major demand from investors such as insurance companies, pension funds, and banks for the issues, as all of them are long-term corporate bonds. 

UDAY BONDS

In the secondary market, Ujwal DISCOM Assurance Yojana bonds aggregating INR 11.20 million were traded at a weighted average yield of 6.6470-7.1706%, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching System showed on Monday.

* INR 5.20 million of Tamil Nadu's February 2031 bonds were traded at 7.1491% 

* INR 6.00 million of Rajasthan's March 2026 and June 2026 bonds were traded at 6.6470%-7.1706%

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Deepshikha Bhardwaj

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