Some banks and public sector companies have put on hold resource-raising through corporate bonds due to uncertainty of interest rates. Market participants are keenly watching out for the monetary policy to be announced by the Reserve Bank of India on April 29.
Issuers like Housing Development Finance Corp, Union Bank of India and Oriental Bank of Commerce have decided to adopt a ?wait-and-watch? approach, are waiting for the outcome of the policy and its impact on corporate bond yields.
According to the Fixed Income Money Market and Derivatives Association (FIMMDA), total traded volumes in corporate bonds, on Tuesday were Rs 571 million. In April 2007, total corporate bond issuances were around Rs 15 billion. However, so far, this month, the total corporate bond issuances have been just Rs 11.58 billion.
?Inflation is also on a high, hence there is a lot of uncertainty in the market. Also, it has become very expensive for companies to raise funds as yields have gone up. The CRR hike has made the situation worse,? said NS Venkatesh, MD & CEO at IDBI Gilts adding that most issuers are reluctant to issue bonds until they get a clear signal from the RBI.
Venkatesh expects the RBI to hike the interest rate by 25 basis points during the monetary policy. Last week, in a bid to control excess liquidity and high inflation, the central bank increased the cash reserve ratio by 50 bps to 8% in two pahses, which would sucked out Rs 18,500 crore in two tranches, from the banking system.
B Prasanna, senior vice-president at ICICI Securities, says the volumes in the corporate bond market have dipped as traders are avoiding trading, anticipating more tightening measures to be taken by the RBI. ?Most issuers have postponed their buying requirements. Also, most corporate bonds have turned illiquid,? Prasanna added.
S Raghavan, head of fund management at IDBI Capital Markets, agrees. He says with liquidity not being so great and uncertainty over rates upholding the market, trades are low and turnover is low.
?Underwriters are apprehensive as they do not have a clear picture about the interest rate regime and supply is limited. Also, pension funds and PF companies do not have enough money in their kitty,? explained Raghavan.