Bond Street to watch low volatility, more issues

 

• Banks, NBFCs to remain top issuers; Higher bank rates lead to faster transfer to bonds

• Indian companies sold bonds worth ₹5.67 tonnes in April-December, compared to ₹6.34 tonnes in the year-ago period

MUMBAI: After a volatile 2022, activity in India's corporate bond market is expected to pick up this year, led by banks and non-bank lenders. Rising bond yields, regulatory changes and global conditions are expected to determine the direction of the bond market, even as rising interest rates are causing more borrowers to shift from the banking system to the bond market.

According to Prime Database data, Indian corporates sold bonds worth ₹5.67 trillion in April-December, as compared to ₹6.34 trillion in the same period of 2021 and ₹7.48 trillion during FY20.

While issuance is yet to rise to 2020 levels, market participants believe it will be less volatile than last year.

“We expect a moderate 10% growth in issuance volumes in CY23 as compared to CY22. Niraj Gambhir, head of treasury at Axis Bank, said, "Rate volatility will be low as a major part of the rate hike cycle is behind us." There is likely to be more issuance activity to refinance mature road sector assets that would benefit from higher ratings. The second half of CY23 is also likely to see some activity driven by the fact that there will be expectations of rate cuts globally, especially if inflation eases as is being widely anticipated," Gambhir said.

Money market participants also expect the demand for listed bonds to increase this year after the Securities and Exchange Board of India (SEBI) reduced the face value of privately held debt securities to ₹1 lakh from the earlier ₹10 lakh. . Despite this, public bond sales are expected to remain popular among retail investors because they offer higher rates and smaller lot sizes.

“With tight liquidity subject to a continued rise in bank lending rates, a weakening rupee and a drought in offshore bond issuance, and a continued narrow spread between the Fed and MPC rates, it is difficult to maintain bond market rates within a range , and hence, bond yields have to go up further. With the new SEBI regulations coming into force from today, we can expect smaller companies to start issuing listed bonds. Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincorp, said, We can certainly expect bond market issuance this year.

Some NBFCs such as Muthoot Fincorp, Edelweiss Financial and IIFL Finance have already launched small-sized public bond issues. Edelweiss plans to raise ₹400 crore, while IIFL Finance plans to raise ₹1,000 crore through a public bond sale this month. Nevertheless, the market is expecting some impact on bond market activity after HDFC Ltd, one of India's largest bond issuers, completed its merger with HDFC Bank this year. This may prompt many investors to turn to other borrowers.

That said, bond issues by companies may remain muted as they remain cautious amid signs of a global economic slowdown.

“The net supply of corporate bond issuance has been flat from April to October as compared to the previous financial year. Based on this data, it appears that corporate borrowers are issuing bonds to roll over their existing liabilities rather than enhance their balance sheets," said Dhaval Dalal, CIO, Fixed Income, Edelweiss Asset Management.