Mumbai: Indian companies are taking advantage of the prevailing surplus liquidity conditions and are continuing to tap the bond market despite higher yields and an uncertain rate outlook, corporate bond experts said.
Several large issuers raised funds in recent days and more are expected to come to the market next week, ahead of a potential rate hike and expectations of tighter liquidity conditions. The six-member Monetary Policy Committee will meet October 5-7 amid expectation of a quarter-percentage-point hike in the policy rate to 5.50%.
Indian companies are expected to raise more than ₹1,000 crore this week, with Edelweiss Financial Services the first to hit the market with a ₹300 crore non-convertible debenture issue on Monday. Bajaj Auto Credit and IndiaFirst Life Insurance Company are likely to raise ₹250 crore and ₹200 crore, respectively.
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Vedanta's board approved a ₹3,500 crore bond issuance, while state-owned Power Grid Corporation's board cleared a ₹5,000 crore bond proposal, according to BSE filings.
"I do not expect the corporate bond market to slow materially despite the increasing probability of higher interest rates. In fact, there is a visible change in the issuer behaviour. Several large issuers have been active and they are increasingly looking to lock in funding before system liquidity drains out and borrowing costs move higher," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm.
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Banking system liquidity has stood at a large surplus this month because of inflows from the FCNR(B) deposits that banks raised under a central bank programme. The daily average surplus was ₹9.97 lakh crore, compared with ₹3.67 lakh crore in August and ₹1.07 in July, RBI data showed. The sharp increase in surplus liquidity has left banks looking for avenues to deploy these funds, and corporate bond issuances are emerging as one such avenue, experts said.
Reliance Industries raised ₹12,500 crore through five-year bonds last week, while Bajaj Finance and Tata Capital recently tapped the market with three-year issuances. The three- to five-year segment is seeing strong demand, as banks have surplus funds from the FCNR(B) deposits, which have largely come in with a similar maturity profile.
