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Informist, Tuesday, Jun. 2, 2026

 

By Vaishali Tyagi and Meera Nair

 

NEW DELHI/MUMBAI – Fundraising through corporate bonds fell on year in May as tight liquidity in the banking system and elevated yields kept issuers on the sidelines. However, borrowing rose sharply on month, driven by a surge in floating-rate bond issues, market participants said.

 

Companies raised INR 659 billion through 233 bond issues in May, down nearly 32% from INR 965 billion raised a year ago through 196 issues, according to data compiled by Informist. Fundraising through corporate bonds rose around 70% in May from INR 388 billion in April.

 

"Issuances in April were very low, while May saw a slight improvement from those levels (volume), partly due to one or two public sector issuances," Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap said. "But the key driver was the rise in floating-rate bonds. I think FRB issuances crossed around INR 13,000 crore to INR 15,000 crore in May."

 

Floating-rate bonds emerged as the key theme in May, with issuances crossing INR 250 billion, market participants said. Cholamandalam Investment and Finance Co. had raised INR 50 billion through floating-rate bonds maturing on Feb. 27, 2029 while Muthoot Finance had raised INR 46.82 billion through floating-rate bonds maturing on Jul. 26, 2029. 360 ONE Prime, Tata Capital, and Mahindra Rural Housing Finance were among key floating bond rate key issuers. "Floating-rate bonds have really caught investors' fancy," Srinivasan said. "From what I've heard, investors are in turn converting their FRB investment into fixed rate by entering into derivative contract to achieve higher fixed returns. That has driven more investor interest in FRBs."

 

Dealers said overall issuances still remained on the lower side as issuers held back in the face of elevated yields, which made pricing unattractive. Yields rose across tenures in May, tracking firm crude oil prices and global cues, though volatility reduced compared to April, dealers said. "Market has already softened a bit as the panic has reduced," Srinivasan said. "Earlier, Trump used to say something in the morning, Iran would refute that same evening. So, market used to go up and down. Now, that volatility has reduced."

 

Tight liquidity in the banking system also added to the upward pressure on corporate bond yields, dealers said. The yield on the three-year National Bank for Agriculture and Rural Development bond was at 7.83-7.85% on May 29, sharply up from 7.64% the start of May. The yield on the five-year bond also rose to 7.80% from 7.68-7.70%, while that on 10-year NABARD bonds also rose to 7.80% from 7.72%. The average liquidity surplus in the banking system during May was INR 1.63 trillion, down sharply from INR 3.88 trillion in April.

 

AAA-rated companies raised INR 325 billion in May, accounting for nearly 49% of the total, while AA+ to AA- rated companies raised around INR 187 billion, or over 29% of the total. In April, AAA-rated companies had accounted for 38% of the total funds raised, while AA+ to AA-rated companies had accounted for 31%.

 

In May, only two public sector companies successfully raised INR 60 billion, slightly up from INR 52 billion in April. State-run NHPC raised INR 20 billion at a coupon of 7.67% on 15-year, separately transferable redeemable principal part structure bonds. National Bank for Financing Infrastructure and Development borrowed INR 40 billion at a coupon of 7.74% through 10-year bonds maturing on May 14, 2036. Both the issueS were fully subscribed. 

 

Dealers said public sector undertakings are holding back their borrowings as government yields remain elevated, making borrowing expensive. Oil marketing companies may return to the debt market to fund their purchases of oil, market participants said. "I believe that the OMCs will tap short-term debt market mainly CPs because of the losses that they are making this time because of higher crude oil prices and may think of bonds as well later," Soumyajit Niyogi, director at India Ratings and Research said.

 

NABARD had planned to raise INR 70 billion through the reissue of its 7.44%, Jul. 17, 2029 bonds, with a base size of INR 20 billion and a greenshoe option of INR 50 billion. However, it withdrew the reissue after receiving bids for less than half the planned amount and at yields higher than expected, dealers said. This is the first bond issuance scrapped by a large state-owned entity in the current financial year. NABARD tapped the corporate debt market for the second time this financial year. On. Apr. 21, it had raised INR 42.50 billion through the reissue of the same 7.44%, July 2029 bond at a cut-off of 7.4892%, although it had planned to raise INR 70 billion.

 

Besides state-owned companies, non-banking financial companies also tapped the corporate bond market in May, while banks continued to stay away from the corporate bond market in May, preferring certificates of deposit to meet short-term funding needs, dealers said. Fundraising by non-banking financial companies rose significantly to INR 413.48 billion in May from INR 223 billion in April. Other sectors including infrastructure, energy, and technology companies raised around INR 106.59 billion, up from INR 62 billion in April. Housing finance companies raised INR 43.75 billion, with Bajaj Housing Finance emerging as the largest housing finance issuer, raising INR 25 billion during the month.

 

"Banks have definitely moved to the CD market and will continue to do so until they see volatility easing in the corporate bond market," Niyogi said. "They are likely to tap bonds only once disbursements under the ECLGS (Emergency Credit Line Guarantee Scheme) pick up and the need for bulk deposits rises." In May, banks raised INR 1.11 trillion through CD, sharply higher from INR 457 billion in April, according to data from Clearing Corp. of India collated by Informist. On a year-on-year basis, CD issuances were up 38% from INR 806 billion during the corresponding period previous year.

 

ICICI Securities Primary Dealership Ltd. was the top corporate bond arranger in May and helped mobilise over INR 37 billion, according to data compiled by Informist. It was followed by ICICI Bank, which arranged issuances worth around INR 19 billion. Other key arrangers included Trust Investments, Axis Bank, and A.K. Capital Services.

 

ROAD AHEAD

Most market participants expect Brent crude near-month futures to remain around or above $90 per barrel, supported by a recovery in global demand, even if the US and Iran reach a peace agreement. Elevated crude oil prices are likely to sustain upward pressure on bond yields. Consequently, corporate bond yields could also remain high, potentially increasing borrowing costs for issuers and affecting the pace of corporate bond issuances.

 

"Although, issuances will increase but still I feel overall if you see that it is going to be in line with last year or below last year," Srinivasan said. "It is not going to increase much due to elevated yields. "Brent crude eased to around $95 per barrel from $105-$106 earlier, but dealers do not expect it to fall below $90."

 

Dealers expect activity to remain concentrated in bonds maturing in up to five years. Spreads over government bond yields have widened in the 10-year segment but narrowed in the five-year segment, as investors avoided duration risk amid rate hike fears. "Duration premium has gone up substantially... So people would prefer three- to five-year (bonds)," Niyogi said. 

 

Investors are keenly awaiting the outcome of the Reserve Bank of India's three-day Monetary Policy Committee meeting, which starts Wednesday. Most market participants expect the rate-setting panel will likely maintain the repo rate at its current 5.25%. "The RBI MPC is unlikely to cut rates and looks that it will maintain status quo in the upcoming policy but a resolution in West Asia and opening of the Strait of Hormuz could lead to a 20-basis-point rally," Srinivasan said.  End

 

Edited by Deepshikha Bhardwaj

 

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