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Informist, Tuesday, Aug. 5, 2025

 

By Vaishali Tyagi

 

MUMBAI – Fundraising through the private placement of corporate bonds slumped on a year-on-year basis in July as major issuers opted to hold off after the front-loading seen in June. Many companies had rushed to lock in the lower yields in June, after rates eased as the Reserve Bank of India's Monetary Policy Committee delivered a 50-basis-point repo rate cut on Jun. 6, along with the announcement of a 100-bps cut in the cash reserve ratio of banks. This resulted in a slowdown in issuances in July, according to market experts. 

According to data compiled by Informist, fundraising through corporate bonds fell nearly 31% on year to INR 691 billion in July through the placement of 306 bonds. In July last year, corporates had placed 260 bonds worth INR 998 billion. 

 

"Issuers already front-loaded in June after the (RBI) rate cut, which is why July saw a significant fall in fresh bond issuances. Initially, there were issuers in the market, to which there was good demand for papers. Seeing the demand, consequently, yields went higher," Harsh Shah, debt dealer at Bank of India Mutual Fund, said. "By the time, things stabilised, we were nearing another Monetary Policy Committee meeting, and market chatter hinted another rate cut was possible. As a result, issuers abstained from issuing bonds at higher rates to reassess their fundraising plans in July." 

 

The RBI's rate-setting panel began its meeting Monday and will announce its decision Wednesday. State Bank of India, in its report, has batted for a rate cut since a lower interest rate regime before Diwali will result in better credit growth. As per the report, cutting rates now will result in front-loaded transmission as well. The Monetary Policy Committee has already slashed the repo rate by 100 bps so far in 2025 to 5.50%.

 

Market participants said issuers abstained from issuing bonds at higher rates amid market uncertainty surrounding the policy rate trajectory, with some participants expecting another rate cut. 

 

Also, fundraising in July fell nearly 20% from a month ago as global uncertainties around tariffs forced some issuers to pause and reassess their fundraising plans, market participants said. Therefore, on account of the looming uncertainty about the India-US trade deal, issuers adopted a cautious stance initially last month. Most market participants were expecting the complete deal to be agreed upon later in the year, but an interim deal was seen likely before the tariff pause deadline ends in August. 

 

On Jul. 30, US President Donald Trump announced a 25% tariff on Indian exports to the US, plus a penalty for its trade with Russia. Market participants do not expect this to have a direct impact on the corporate bond market. However, it could add to a disinflationary global environment and may weigh on India's growth as well, by up to 40-50 bps, according to a research report by SBI.

 

Dealers said the overall momentum in the corporate debt market was slow. "Both the primary as well as secondary market was lacklustre in July also due to uncertainty regarding the near-term course of interest rates," a fund manager at a mutual fund house said. "During such a time, the market was clearly on pause. Nobody wanted to risk positions with uncertainty around rates and liquidity," a fund manager at another mutual fund house said.

 

Fundraising by public sector companies fell more than threefold to INR 80.1 billion in July from 265.96 billion in June. Among public sector companies, the National Bank for Agriculture and Rural Development was the largest issuer, raising INR 70.0 billion in July, followed by Small Industries Development Bank of India, which raised INR 59.26 billion through four bond offerings. Both the issuers raised funds through bonds maturing in three years.

 

The slowdown in state-owned bond issuances in July can be attributed to issuers being in wait-and-watch mode as they waited for better yields, dealers said. According to Shah, "this was precisely due to PSUs (state-owned entities) who were enjoying lower yield (in June), which have seen some uptick in July... therefore, their tendency is to wait, try at a lower yield... we can say they are still in wait and watch mode."

 

A few state-owned entities that had previously locked in lower yields were hesitant to issue bonds at higher yields, Shah said. "Then they can't offer and give you a higher spread or higher yield. So the one who has paid 6.5%, he is not ready for 7%," he added. This cautious approach has led to a slowdown in state-owned bond issuances, as issuers wait for more favourable market conditions.

 

Fundraising by non-banking finance companies amounted to INR 173.92 billion in July, broadly the same as INR 172.79 billion in June. On the other hand, fundraising by housing finance companies slumped over 50% on month to INR 34.06 billion in July. No municipal corporations tapped the bond market last month. 

 

Banks largely remained absent from the corporate bond market for the second consecutive month, with only one issuance recorded in July. Equitas Small Finance Bank raised INR 5.0 billion through bonds maturing in five years, marking a rare deal in an otherwise quiet market. Despite some banks securing board approvals, they did not raise funds through bonds as some of them were looking to raise funds through qualified institutional placements. State-owned banks are likely to raise up to INR 450 billion through qualified institutional placement in 2025-26 (Apr-Mar), Informist Media reported in early July, with SBI already raising INR 250 billion through a QIP. 

 

The absence of banks from the corporate bond market in July can be attributed to their healthy profitability and equity issues. "Banks have reported the right mix in their profit and loss sheet this time (in the audited financial results for the quarter ended June)... their treasury profits and profitability have improved a lot, therefore their capital adequacy has improved significantly," Ajay Manglunia, executive director, fixed income markets at Capri Global Capital, said. "With many banks raising equity through qualified institutional placements... banks are less reliant on bond issuances to raise funds. This shift in funding strategy has contributed to the lack of bank issuances in the corporate bond market during July."

 

Looking ahead, market participants anticipate a surge in bond issuances in the coming quarters. As issuers seek clarity on monetary policy meeting outcome, corporate bond markets are likely to benefit from faster lending rate transmission in the fixed-income market compared to bank rates.  End

 

Edited by Tanima Banerjee

 

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