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Informist, Wednesday, Sept. 3, 2025

 

By Vaishali Tyagi

 

MUMBAI – Fundraising through private placement of corporate bonds slumped in August as issuers refrained from tapping the market because of volatility in government bonds and persistently-high yields throughout the month. Dealers said issuers preferred to wait for a more favourable borrowing environment as sovereign bond yields kept rising till August-end, which eroded investor appetite and pushed borrowing costs higher.

 

On Aug. 29, the yield on the 10-year benchmark 6.33%, 2035 gilt closed at 6.57%, 20 basis points higher than at the end of July and sharply higher than 6.34% estimated in an Informist poll.

 

According to data compiled by Informist, fundraising through corporate bonds fell nearly 40% on year to INR 585.25 billion in August through the placement of 290 bonds. In the same month last year, corporates had placed 263 bonds worth INR 814.00 billion.

 

"There was a rally happening in g-sec market which impacted corporate bond market as well and people were facing mark-to-market losses due to rising yields (in both corporate and government bonds), and there is no positive news flow in market so that people can take aggressive bets," Chinmay Shah, vice president, Tipsons Group, said. "Issuers don't want to borrow at a much higher cost when they had already locked in lower rates earlier in April and May."

 

According to dealers, many state-owned entities and AAA-rated private issuers stayed away from the corporate debt market in August as they did not want to pay higher coupons. Market participants said issuers are adopting a wait-and-watch approach, anticipating a decline in yields. This expectation is largely driven by the upcoming cash reserve ratio cut announced by the Reserve Bank of India in June, which will inject INR around 2.50 trillion of liquidity into the banking system starting Saturday, in four equal tranches.

 

"Some issuers are clearly waiting to time the market better and waiting for yields to come down...with the phased implementation of cash reserve ratio which is set to add liquidity to the system, and that's when they may come in to issue their papers at those lower levels," Killol Pandya, head - fixed income, JM Financial Mutual Fund, said.

 

Also, fundraising in August fell nearly 15% from INR 690.55 billion in July as uncertainties around US tariffs forced some issuers to pause and reassess their fundraising plans, market participants said. On account of the looming uncertainty about India-US trade deal, issuers adopted a cautious stance last month. The additional 25% US tariff on Indian goods came into effect on Aug. 27 for the country's crude oil purchases from Russia. 

 

The corporate debt market was sluggish in July and the trend continued in August, with activity in both primary and secondary markets being lacklustre. Dealers attributed the subdued volume in August to uncertainty surrounding proposed changes in goods and services tax slabs. Prime Minister Narendra Modi's announcement of GST reforms led to concerns about the revenue foregone due to tax rate reductions resulting in increased government borrowing or reduced gilt buybacks, negatively impacting the government bond market and subsequently the corporate bond market.

 

"During such uncertain times, the market was clearly on pause and the proposed changes in GST slabs further added to the negative sentiment...and this led to negative sentiment in the gilt market, and this cumulative effect significantly impacted the corporate bond market," a fund manager at a mutual fund house said. "Nobody wanted to risk positions with uncertainty around rates and liquidity."

 

Fundraising by public sector companies rose marginally to INR 99.98 billion in August from INR 80.1 billion in July. Among them, Power Grid Corp. of India was the largest issuer. It raised INR 50.0 billion in August through 10-year bonds maturing in August 2035. NHPC raised INR 20 billion through bonds maturing in August 2027.

 

State-owned Housing and Urban Development Corp. and AAA-rated Bajaj Finance scrapped their bond issuances due to high coupons and other large borrowers also delayed their fundraising plans. A few state-owned entities that had previously locked in lower yields were hesitant to issue bonds at higher yields, Pandya said. For instance, if an issuer had paid 6.5%, they were reluctant to accept a 7.00% yield. This cautious approach resulted in slowdown in state-owned bond issuances, with issuers waiting for more favorable market conditions before entering the market, he said.

 

Fundraising by non-banking finance companies amounted to INR 179.55 billion in August, higher than INR 173.92 billion in July. However, fundraising by housing finance companies fell nearly 15% on month to INR 29.00 billion in August. Municipal corporations did not tap the bond market last month.

 

Banks largely remained absent from the corporate bond market for the third consecutive month, with only one issuance recorded in August. ESAF Small Finance Bank raised INR 750 million through bonds maturing in May 2031, 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 and there was more than enough liquidity in the system. The surplus liquidity in the banking system as indicated by the Reserve Bank of India's net absorption of funds averaged INR 2.78 trillion in August, slightly lower than INR 3.04 trillion in July.

 

"Surplus liquidity is there in the system and lenders are turning to other avenues of funding," Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap, said. "This liquidity has reduced the immediate need for funds among issuers. But banks that need capital still have to come to the market. And when they do, they are borrowing only through QIPs and foreign sources of funding, not the domestic bond market."

 

Looking ahead, market experts expect a surge in corporate bond issuances during the Oct-Dec quarter, but only if yields come down. Currently, uncertainty dominates the corporate debt market. However, market participants expect the upcoming festive season to boost spending and credit growth. "Everybody knows that the second half is usually the business season for corporates and banks, credit growth will pick up and lead to increased activity in the corporate bond market," the fund manager quoted above said.  End

 

Edited by Ashish Shirke

 

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