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Informist, Wednesday, Feb. 12, 2025

By Ashna Mariam George

MUMBAI – A higher-than-expected cut-off on bonds issued by big-ticket issuer National Bank for Agriculture and Rural Development pushed yields on corporate bonds maturing in three and five years higher by 2-5 basis points in the secondary market Wednesday, dealers said. However, yields on 10-year paper stayed largely steady on lack of activity in that tenure.

The rise in yields comes as the market lacks demand for new paper in the primary market, dealers said. "Mutual funds front-loaded a lot just before the (monetary) policy and they also had expectation that there will be some liquidity measures taken by RBI (Reserve Bank of India), but that didn't come in. Because of that, mutual funds right now seem to be in either selling mode or they are just holding on to the position and not doing anything and demand is not getting created, which is pushing yields higher," a senior fund manager at a mid-sized mutual fund house said. 

Since NABARD is a benchmark paper for corporate bonds, its issuance not getting lucrative levels has changed market sentiment. The issuer raised INR 45 billion through the reissuance of Mar. 24, 2028, bond at 7.51% yield, which was originally allotted on Jan. 13 at a coupon of 7.53%. However, market participants had expected the cut-off to be in the range of 7.45-7.50%.

This was the second time the bond was reissued in the secondary market. On Jan. 28, the company had raised INR 50 billion through the 2028 bond reissuance at a yield of 7.50%.

"Investor demand is now slightly less because there is a lot of supply of the same paper," a fund manager at another mid-sized mutual fund house said. "There are a lot of primary issuances happening and there is a lack of funds (for investors)... a lot of primary issuances are not really good for the secondary market." 

So far this week, funds worth over INR 355 billion were raised through the primary market of corporate bonds. The rest of the week is also packed with bond issuances worth nearly INR 137 billion from state-backed entities, banks, and private sector companies.

The primary market of corporate bonds remained robust Wednesday with public-sector entities and non-banking finance companies raising over INR 88 billion through their respective bond issuances. Indian Railway Finance Corp. tapped the market to raise INR 30 billion through bonds maturing in 15 years at a coupon of 7.28%. LIC Housing Finance and L&T Finance raised funds aggregating to INR 13.63 billion Wednesday through their respective bond offerings. 

On Thursday, Punjab National Bank has invited bids to raise up to INR 50 billion through 10-year infrastructure bonds. Market participants expect the issue to bag a coupon in the range of 7.30-7.35%. HDFC Life Insurance Co. will also tap the market to raise up to INR 10 billion through bonds maturing in 10 years. 

With so much happening in the primary market, the secondary market remained humdrum Wednesday. Deals aggregating to INR 64.89 billion were recorded on the National Stock Exchange and BSE combined. Only some mutual funds and banks were active on both the buying and selling sides, dealing in paper across tenures, while long-term investors such as insurance companies and pension funds were on the sidelines, dealers said.

Paper issued by NABARD, MSRDC Sea Link, National Bank for Financing Infrastructure and Development, Telangana State Industrial Infrastructure Corp., IIFL Samasta Finance, EAAA India Alternatives, and HDB Financial Services were traded the most on exchanges.

The secondary market remained dull also because market participants were awaiting India's headline CPI inflation for January. However, the data failed to have an impact on yields as a lower inflation print was already priced in.

The inflation print fell to a five-month low of 4.31% in January from 5.22% in December, primarily due to lower vegetable prices, data released by the statistics ministry showed. According to an Informist poll of 12 economists, headline CPI inflation was seen falling to a five-month low of 4.5% in January, driven by a sharp fall in vegetable prices.

Some market participants believe the data may not pave the way for a rate cut in the RBI's Monetary Policy Committee meeting in April. "The guidance (by the Monetary Policy Committee) was neutral, so another CPI number will be watched by the RBI," an associate vice-president at a mid-sized brokerage said.

UDAY BONDS

In the secondary market, Telangana's Mar. 22, 2025, Ujwal DISCOM Assurance Yojana bonds aggregating to INR 5.0 million were traded at a weighted average yield of 7.3765%, data from the RBI's Negotiated Dealing System–Order Matching System showed Wednesday.

BENCHMARK LEVELS FOR CORPORATE BONDS:

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Edited by Deepshikha Bhardwaj

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