Corporate bonds off to a slow start. Bank bonds may come to the rescue.

Listed bond issuances through the electronic debt bidding platform (EBP) saw a sharp drop in terms of the total amount raised during the first quarter, to about ₹1.6 trillion from ₹2.42 trillion during the corresponding period of 2023-24, show data from BSE and NSE.

The total number of issues fell to 247 from 287.

The total amount of corporate bonds raised through the EBP also saw a sharp decline sequentially. In the January-March quarter, corporate bond issuances through EBP stood at ₹2.39 trillion.

“This drop was largely influenced by the absence of major issuers like HDFC and a one-off large issue by Goswami Infratech in the first quarter of last year. Additionally, regular issuers such as public sector entities like (Power Finance Corp.) and Nabard have issued fewer bonds this fiscal year,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm.

Nabard is the National Bank for Agriculture and Rural Development.

Srinivasan, however, expects a turnaround in corporate bond issuances in the July-September quarterly, mostly supported by a large supply of bank bonds.

“SBI has already raised ₹20,000 crore through infra bonds, and this will be followed by other major banks including Canara Bank, Bank of Baroda, Bank of India, and HDFC Bank, to name a few,” he said.

A spokesperson of the Securities and Exchange Board of India didn’t respond to emailed queries.

A reversal that didn’t happen

“Despite attractive yields and strong investor appetite for long-term bond instruments from top-rated private sector issuers, interest has been somewhat subdued since April this fiscal year,” Srinivasan added. “Issuers seem to have either postponed their growth plans due to the election or waited for yields to come down in anticipation of a reversal in monetary policy and the beginning of interest rate cuts.”

In June, the Reserve Bank of India’s Monetary Policy Committee decided to keep the benchmark repo rate unchanged at 6.5% for the eighth consecutive time.

Last week, Shaktikanta Das, the RBI governor, said he expected retail inflation to be close to 5% in June, in line with the central bank’s expectations but far from its 4% target to begin considering lowering interest rates, according to a Reuters report.

Retail inflation based on the consumer price index rose to 5.08% year-on-year during June, after dropping to a 12-month low of 4.75% in May. The rise in June was due to higher food inflation, which accounts for nearly 40% of the consumer price basket.

A corporate thrust

Fitch Ratings expects Indian companies to raise more capital this year to extend their capacities.

“We expect India’s strong GDP growth outlook, the banking sector’s improved financial health, possible interest-rate cuts starting late-2024, and our view of broad policy continuity after the recent elections to support overall credit access for corporates in FY25,” Fitch Ratings said in a recent report titled ‘India Corporates Credit Trends’.

“We expect increased offshore bond issuance by corporates in FY25, as global central banks pivot to monetary policy easing, with the (European Central Bank) cutting rates recently, and the US Federal Reserve and the Bank of England likely to follow in late-2024,” it added.

India’s economy expanded at 8.2% in 2023-24, supported by a 7.8% increase in the final quarter, belying fears of a slowdown as manufacturing, electricity, and construction fired on all cylinders.

For 2023-24, RBI estimates India’s economy to grow at 7.2%.

The inclusion of Indian government bonds in JPMorgan’s widely tracked emerging market debt index is also expected to prompt billions of dollars of inflows into the world’s fifth-largest economy.

India’s government bonds were included in JPMorgan’s Government Bond Index-Emerging Markets index, and the index suite benchmarked by about $236 billion in global funds. The index provider added the securities on 28 June, with India having a maximum weight of 10% on the index.