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Informist, Wednesday, May 21, 2025

By Vaishali Tyagi

MUMBAI – Yields on corporate bonds in the secondary market fell another 3-4 basis points Wednesday, driven by growing expectation of a rate cut by the Reserve Bank of India's Monetary Policy Committee in the upcoming June policy, dealers said. Market participants are betting on at least a 25-basis-point rate cut, with traders actively adding papers to their portfolios, they added. The central bank will hold its bi-monthly policy meeting on Jun. 4 and with outcome due on Jun. 6

"As rate cut expectations firm up, investors are moving to corporate bonds to lock in higher yielding papers," a dealer at a mid-sized brokerage firm said. "Strong demand for bonds pushed yields down driven by hopes of capitalising on the expected rate cut atleast 25 bps and build their portoflios as there is comfortable liquidity and good appetite with traders, and traders are expecting yields may go further down."

Dealers said market has seen active participation from various segments, including banks, mutual funds, and insurance companies, due to good appetite and comfortable liquidity. Most participants were active on buying side across tenures including banks, mutual funds, and insurance companies, while some pension funds and a handful of insurance companies sold the bonds, dealers said. 

Deals aggregating INR 161.40 billion were recorded on the National Stock Exchange and the BSE combined, slightly lower than INR 168.34 billion reported Tuesday. The most traded papers Wednesday were those issued by the Rural Electrification Corp., Apex Homes., LIC Housing Finance, Telangana State Industrial Infrastructure Corp., and National Bank For Agriculture And Rural Development. 

On Tuesday, the RBI had net absorbed INR 1.85 trillion from the banking system, down from INR 1.94 trillion Monday. Dealers attribute the fall in liquidity surplus to outflows on account of GST payment. 

Market participants also said they are waiting to take cues from the RBI's Central Board of Directors meeting which is likely on Friday. According to the median estimate of eight economists polled by Informist, the RBI is likely to transfer a record surplus of INR 2.8 trillion to the government for 2024-25 (Apr-Mar). Last year, the government had received a record INR 2.11 trillion from the central bank as surplus.

Lower-than-expected cut-off on bonds issued in the primary market also pushed down yields in the secondary market of corporate bonds, dealers said. State-owned issuer REC raised INR 56.35 billion through two bonds of different maturities. The company issued INR 30 billion through bonds maturing on Jan. 31, 2028, at a coupon of 6.52%, which was fully subscribed. According to the bid book accessed by Informist, the company got 82 bids totalling INR 86.15 billion with the coupon ranging from 6.47% to 6.75%. 

The power project financer raised another INR 26.35 billion through papers maturing on Apr. 30, 2036, at a coupon of 6.81%. For this issuance, the company received 100 bids aggregating to INR 75.85 billion in the coupon range of 6.61% to 7.80%. 

"Both (REC) bonds were issued at a very good coupon rate, surprisingly...REC's January 2028 paper (maturing on Jan. 31, 2028) got agressive bidding and better than market expectations," a dealer at another mid-sized brokerage firm said. "See, this clearly shows that investors are willing to invest at this time." 

On Apr. 28, the navratna company  raised INR 50 billion through two bonds of different maturities. The company issued INR 30 billion through bonds maturing on May 31, 2030, at a coupon of 6.87% and another INR 20 billion through papers maturing on May 31, 2035, at a coupon of 6.86%. 

Thursday, Axis Finance will tap the market to raise INR 10 billion through bonds maturing on Aug. 23, 2028. Shriram Finance has also invited bids to raise INR 5.0 billion through re-issuance of bonds maturing on Apr. 9, 2028.

Merchant bankers anticipate a surge in primary market issuances, driven by growing investor interest in state-owned bond issuances and 'AAA' rated papers. "There's likely to be a slew of issuances as traders are expecting better interest from investors with increased activity in the primary market." the dealer quoted above said. 

UDAY BONDS

In the secondary market, Tamil Nadu's February 2028, February 2031, and February 2032, Ujwal DISCOM Assurance Yojana bonds aggregating INR 6.50 million were traded at a weighted average yield of 6.2821-6.5513%, data from the RBI's Negotiated Dealing System–Order Matching System showed Wednesday.

BENCHMARK LEVELS FOR CORPORATE BONDS:

End

Edited by Akul Nishant Akhoury

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