With considerable amount of liquidity being sucked out of the system and funding requirement of non-banking finance companies (NBFCs) having been increased following back-to-back IPOs, yields on commercial papers (CP) shot up further this week. Take for example Axis Finance which did a three-month CP at 6.65% on Friday. The firm had paid just 6.58% for a similar-tenure CP on September 5, Bloomberg data show.
A similar trend can be seen with L&T Finance. The company paid 6.74% on a three-month CP on September 13, while it had paid just 6.68% for a similar-tenure CP on September 12. Likewise, TMFL raised funds via a three-month CP at 6.76% on September 14. The company had issued a three-month CP at 6.58% on August 31.
Ajay Manglunia, EVP at Edelweiss Securities, points out that there has been significant liquidity reduction from the system this week led by OMO sales, SDL auctions, G-Sec auctions, advance tax outflows, etc. “Naturally, the yields are on the higher side.”
More than Rs 22,000 crore of SDLs were auctioned this week and Rs 10,000 crore worth of central government securities were sold as part of open market operation sales. G-Sec auctions were also slotted on Friday. Short-term CPs have risen in the range of 5 to 15 basis points, with the effect more visible in NBFC papers.
Lakshmi Iyer, chief investment officer—fixed income at Kotak AMC, indicates that CP yields rose this week across tenures following back-to-back IPO funding requirements and advance tax outflow requirements.
“The yields have risen more on the NBFC papers as these firms are in requirement of funds. Since most NBFCs require funds at the same time for IPO financing and there is a sectoral limit on how much mutual funds can invest in NBFC papers, yields are rising. This is there to stay for near term till we see IPO activity abates as well as there is some clarity on the monetary policy going forward,” said Iyer.
Three IPOs — Matrimony.com, ICICI Lombard and Capacite Infrastructure — were open for subscription this week. The market is now keenly eyeing the monetary policy next month as expectation of a rate cut has diminished following rise in inflation.