Latest news with #KetanParikh
Mint
29-04-2025
- Business
- Mint
Corporates tap bond markets for record fundraise in FY2025
MUMBAI : Indian companies' fund raising through corporate bonds hit a high in fiscal year 2025, owing to the fall in yields and strong appetite. According to data released by the Securities and Exchange Board of India (Sebi), Indian firms raised ₹ 9.87 trillion through bond sales until March 2025, a 17% jump from the previous year. 'Corporate bond issuances touched a new high last year, driven by a combination of factors. Although the overall year-on-year growth in issuance volumes remained steady, major structural shifts were visible. Banks' infra bond issuances surged to a record level, while the absence of HDFC Ltd's regular bond issuances post its merger with HDFC Bank was notable," said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap. While corporate bond issuances remained flat year on year, public sector entities and banks' issuances increased nearly 25%, contributing to the overall increase. According to exchange data, banks collectively raised ₹ 94,438 cr through infrastructure bonds in FY25, compared to ₹ 51,1081 in FY24. Banks collectively raised ₹ 89,588 crore through infrastructure bonds in the first 11 months of FY25 against ₹ 51,081 crore in the year-ago period. Public sector banks (PSBs) accounted for 90% of the total infra bond issuances, up from 51% in the year-ago period. Tight banking system liquidity also pushed corporates and NBFCs to tap bond markets increasingly, where funding was available at comparatively better rates than bank loans. Last year saw the banking system's liquidity turn from surplus in the first half to deficit in the second half. The average liquidity deficit in the inter-bank market crossed ₹ 3.3 trillion in January this year. Yields on corporate bonds fell between 25 and 50 basis points last year, tracking government bond yields. 'For a larger part of FY2025, the corporate bond curve was inverted on account of tight liquidity conditions and strong demand in long-term corporate bonds from investors," said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance. While AAA-rated companies dominated the issuance, AA-rated issuances jumped by 7% last year, according to stock exchange data. 'With the introduction of Online Bond Platform Providers (OBPP) platform and rise in interest amongst family offices, we saw a significant rise in issuance of AA-rated bonds and below. While this can be viewed as a good sign of broadening the credit spectrum, there is a need for the retail bond investor to know the risk which they carry with the various issuers and not get lured by only the returns," said Vinay Pai, head of fixed income at investment banking firm Equirus. Fund managers expect this trend to continue in FY2026, with corporate bond issuances crossing ₹ 11 trillion. With the RBI having infused almost ₹ 6 trillion of liquidity through various measures, including open market operations and FX swaps, and another ₹ 2.5 to 3 trillion worth of dividends being paid by the RBI to the government, market participants are expecting liquidity to remain in surplus this year. RBI Governor Sanjeev Malhotra has also assured that the central bank will keep 1% of net demand and time liabilities (NDTL) as surplus liquidity. 'Last year, we had a significant amount of demand for long-tenor government securities from insurance companies, provident and pension funds. Now, as the interest rate cutting cycle plays out and we get deeper into the rate cut cycle, maybe in Q2 or Q3 of FY2026, we could see a shift from long-tenor government securities towards corporate bonds in the 5 to 10-year segment from a carry perspective and positioning for curve steepeners. This could lead to a compression in the currently elevated corporate bond spreads," added ICICI Pru Life's Parikh. Market participants also say that companies will prefer to tap the bond market this year as well, since the bank lending rate has yet to come down to the extent that the RBI has cut rates. While the repo-linked lending rate has come down by 50 basis points (bps), the Marginal Cost of Funds-based Lending Rate for most banks is down by only 10 bps. Corporate bond yields have fallen by 50-60 basis points to below 7%, especially in the 3-5 year segment.
Reuters
21-04-2025
- Business
- Reuters
India's soon-to-be-introduced bond forwards seen boosting demand for state debt
MUMBAI, April 21 (Reuters) - India's upcoming bond forwards are set to boost demand for state debt and lower borrowing costs for sub-national issuers, a move investors say could help deepen the country's local bond market. The Reserve Bank of India announced guidelines for bond forwards in February, with rules set to take effect from May 2. While the contracts cover both federal and state bonds, investors expect stronger demand for state bond forwards due to their higher yields. "Insurance companies would be looking to use state development loans (SDLs) as the underlying for bond forwards with the objective of yield enhancement," said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance, adding that this would create demand for state bonds and help them borrow at more affordable costs. Indian states have emerged as major borrowers in recent years, with their debt levels approaching those of the federal government. While New Delhi plans to raise 15.82 trillion rupees ($185.93 billion) this year, state governments are expected to borrow around 12.50 trillion rupees, according to ICICI Securities Primary Dealership. The 10-year notes were issued at around 6.71%, compared to 6.41% on federal bonds of similar maturity at the latest auction of state bonds. The RBI introduced bond forwards after insurance companies increasingly turned to unregulated forward rate agreements (FRAs) to hedge interest rate risks. Unlike FRAs, which involve only cash settlement of price differences, bond forwards require physical delivery of the underlying securities. Three bond market participants said insurance companies—owing to their long-term liabilities—are expected to dominate this new market segment, though the product could attract a broader set of investors over time. "Bond Forward product will appeal to a wider set of investors, who may want to either, similarly hedge their interest rate risks, or take positions based on their view of interest rates," Badrish Kulhalli, head of fixed income at HDFC Life Insurance said. Investors said demand for bond forwards linked to 10–15 year state bonds is likely to be stronger, given the wider spreads in that segment compared to longer maturities. The 10-year state-central bond yield gap stood at around 30 basis points last week, while 30-year yields were at parity. The availability of forward contracts will also help stabilise the additional spreads that investors demand from states. "In the long run we could see spread compression or every time spreads widen, we would see demand coming from insurance companies," ICICI Prudential's Parikh added. ($1 = 85.0870 Indian rupees)
Reuters
18-02-2025
- Business
- Reuters
Indian banks' infra bond funding to turn expensive as investors demand higher returns
MUMBAI, Feb 18 (Reuters) - Fundraising through infrastructure bonds is set to become more expensive for Indian lenders that have used them to raise record funds as investors demand higher returns amid increased debt supply. Domestic lenders have raised a record 892 billion rupees ($10.26 billion) in this financial year, with some, including State Bank of India, likely to tap this route before the fiscal year ends in March. "Over the last month, demand from long-term investors has been weak, resulting in widening of spreads in the long-term corporate bond segment," said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance. Rising debt issuances, especially by banks and other long-term issuers, have also led to spreads widening between corporate and government bond yields, he added. State-run Bank of Maharashtra, Punjab National Bank and Bank of India have raised a total of 72.52 billion rupees, about 55% of their 130 billion-rupee target, including greenshoe options. The lenders have also had to pay a higher premium over the corresponding maturity government bond yield compared to their previous debt issuance. In July, Bank of India sold 10-year infra bonds at a spread of 56 basis points above the 10-year benchmark bond yield, while Bank of Maharashtra raised funds at a spread of 85 bps over the benchmark yield. Both lenders had to pay an additional spread of 15 bps for the sale. None of the lenders responded to Reuters' emails seeking comment. "Large institutional investors, having met their minimum regulatory investment requirements, are now demanding higher yields amid expectations of a substantial state debt supply through March," said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap. Indian states are scheduled to borrow 2.25 trillion rupees in the last five weeks of the financial year. While yields in the secondary market have gone up by 6-8 bps since the central bank's rate cut decision earlier this month, investors are constantly bidding at higher levels for new debt placements. Along with the lenders, other state-run companies such as REC, PFC, NABARD and IIFCL, closed their issues recently without meeting their targets, signalling overall investor fatigue. Indian lenders unable to raise planned quantum despite paying higher yields: ($1 = 86.9190 Indian rupees)
