Companies tap bond market amid rate hike expectations
Indian companies are actively raising funds through the bond market. This activity occurs despite anticipated interest rate increases and tighter liquidity. Large issuers are securing financing before borrowing costs potentially rise further. Surplus banking system liquidity is driving demand for corporate bond issuances. Companies are expected to raise over one thousand crore rupees this week.
Indian companies are increasingly turning to the bond market to raise funds, despite higher yields and an uncertain outlook for interest rates, experts in corporate bonds have reported. Several large issuers have recently raised capital, with more expected to join the market next week, as the country edges closer to a potential rate hike and tighter liquidity conditions.
The Monetary Policy Committee is set to meet from October 5-7, hoping to decide on a quarter-percentage-point increase in the policy rate to 5.50%. Indian companies are projected to raise over ₹1,000 crore this week, with Edelweiss Financial Services leading with a ₹300 crore non-convertible debenture issue on Monday. Bajaj Auto Credit and IndiaFirst Life Insurance Company are also anticipated to raise ₹250 crore and ₹200 crore, respectively.
Vedanta's board approved a sizable ₹3,500 crore bond issuance, while the Power Grid Corporation's board approved a ₹5,000 crore bond proposal. These developments suggest that the corporate bond market will not experience a significant slowdown, even with the likelihood of higher interest rates. Instead, issuers are strategically locking in funding before the surge in system liquidity dissipates and borrowing costs rise.
Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm, notes the shift in issuer behavior, with several large issuers actively seeking to secure funding before liquidity conditions deteriorate. Surplus liquidity in the banking system has been substantial this month, primarily due to inflows from foreign currency non-resident (BCNR) deposits raised under a central bank program.
Daily average surplus liquidity reached ₹9.97 lakh crore, a stark contrast to ₹3.67 lakh crore in August and ₹1.07 lakh crore in July, according to RBI data. This excess liquidity has prompted banks to seek avenues to deploy these funds, with corporate bond issuances emerging as a prominent choice. Reliance Industries recently raised ₹12,500 crore through five-year bonds, while Bajaj Finance and Tata Capital have recently tapped the market with three-year issuances.
The three-to-five-year segment is witnessing strong demand, as banks possess surplus funds with a similar maturity profile.
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