Corporate bond issuances in India are likely to remain robust in the new calendar year, potentially reaching fresh records, driven by the sustained capital expenditure push from companies and a likely softer interest rate regime, analysts said.
Indian companies raised a record 9.70 trillion rupees ($116.50 billion) through the sale of bonds in 2023, a 25% jump over 2022, data from information provider Prime Database showed.
The issuance size could go up by 20% from 2023 as a reversal in rates will happen this year, said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.
“Usually, corporate bond yields will correct immediately, compared with rates on term loans.”
India’s central bank is expected to start lowering rates at some point in mid-2024 and though the rate cuts are unlikely to be deep, rates could drop by 25-50 basis points by year-end, according to traders and economists.
Better liquidity and softer interest rates are likely to fuel growth in issuances, said Sujata Guhathakurta, president-debt capital market and infrastructure financing at Kotak Mahindra Bank.
“We expect a lot of new issuers, especially from the infrastructure and NBFC (non-banking financial company) sector, tapping the bond market to meet their funding needs as part of their diversification strategy,” she added.
The issuances in 2023 were dominated by banking and financial sector firms, and merchant bankers do not expect any major change in this trend in 2024.
Despite heavy supply, investors and bankers are confident that the rising corpus with mutual funds and long-term investors like insurance and pension funds would come to the rescue.
Kotak’s Guhathakurta said the long-only investors would absorb the longer-tenor issues, while mutual funds, corporates and bank treasuries would remain active in the shorter-tenor space.
Longer-duration issuances by banks, financial and state-run firms have been lapped up by insurance companies and provident funds over the last few months, with spreads over government bond yields narrowing, reflecting robust demand.
($1 = 83.2640 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Swati Bhat and Sohini Goswami)
