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Informist, Friday, May 9, 2025

By Siddhi Chauhan

MUMBAI – Heading into the long weekend, borrowing through short-term debt papers slumped Friday as uncertainty around India-Pakistan conflict loomed over the market, dealers said. Money markets will be shut on Monday on account of Buddha Purnima. A rise of three to seven basis points in short-term borrowing cost also withered issuer appetite, dealers said. 

"Within these three days situation can go either ways, things can either escalate or cool off," a dealer at a private sector bank said. "Nobody knows what will happen so it is better to remain at sidelines for now." Most banks have refrained from borrowing through the certificates of deposit this week due to elevated rates. 

On Thursday, news report said India neutralised Pakistani drone and missile attacks targeting several military sites in Jammu and Kashmir, Punjab, and Rajasthan, marking an escalation in hostilities between the two neighbours. Anticipation of further such developments and a cash crunch from mutual funds resulted in indicative levels on the three-month paper issued by banks to rise by around 3 bps to 6.53-6.73%. However, Punjab and Sind Bank, the sole CD issuer raised INR 10 billion through a three-month paper at 6.76%. In the secondary market, rates on the three-month paper rose also rose by 10 bps. 

"Mutual funds are low on cash right now because they have received less cash," another dealer at a private sector bank said. "They have received low inflows because people don't want to invest into mutual funds right now because of India and Pakistan conflict. They would rather prefer safe-haven assets." 

Similar sentiment prevented issuers to tap the commercial paper market. CPs worth INR 7.25 billion were raised Friday, sharply down from INR 72.75 billion on Thursday. Indicative rates on the three-month paper issued by non-manufacturing companies rose by seven bps to 6.77-6.90%, while those on the three-month paper issued by manufacturing companies rose by five bps to 6.60-6.80% Friday. 

While Canfin Homes Ltd. raised INR 5.00 billion through a three-month paper at 6.82% and Godrej Industries raised INR 2.25 billion through a three-month paper at 6.74%. On Thursday, Power Fianance Corp. was the largest issuer, raising INR 30 billion through a two-month paper at 6.68%, followed by the Export-Import Bank of India, which raised INR 25 billion through a three-month paper at 6.57%. 

Going forward, market will closely monitor and will take cues from the developments in India Pakistan conflict, dealers said. If situation worsens, borrowing costs on short-term debt papers is expected to rise significantly, dealers said. 

--Primary market

* Godrej Industries and Canfin Homes raised funds through CPs.

* Punjab and Sind Bank raised funds through CDs.

--Secondary market

* Punjab National Bank's CD maturing Tuesday was traded five times at a weighted average yield of 5.8529%.

* Reliance Retail Ventures' CP maturing Tuesday was traded eight times at a weighted average yield of 5.8869%.

Following were the volumes, in INR billion, in the secondary market for short-term debt at 1700 IST, as detailed by the Clearing Corp. of India's F-TRAC platform:

End

Edited by Akul Nishant Akhoury

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