After a strong start earlier in the year, the corporate bond market has slowed as rising yields and weak sentiment dampened activity. According to market participants, the total issuances in 2025 may be lower than last year.
“I had expected bond issuances to rise by about 10% this year, but without stronger participation from banks, volumes could instead decline by a similar margin.” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
He added that overall bond supply this year may hover around Rs 11 lakh crore or even fall below last year’s level. For meeting funding needs, many banks may prefer alternatives such as qualified institutional placements (QIPs) over bond issues. With pricing conditions still tight, fresh issuances could come at higher costs in the 7.20–7.25% range, which might further deter them.
In the calendar year 2024, companies raised Rs 10.93 lakh crore through corporate bond issuances. So far in the year, the issuances stood at Rs 9.09 lakh crore. The corporate bond issuances were record high at Rs 3.44 lakh crore during April-June period, whereas it fell to Rs 2 lakh crore during July-September period. Post-June policy, corporates had taken a step back as yield went higher after RBI changed its stance to ‘neutral’ from ‘accommodative’.
“We think that overall, the number last year, which was Rs 11.1 lakh crore or thereabouts, we are going to end at a lower number,” said Shailendra Jhingan, MD, ICICI Securities Primary Dealership at a BFSI summit in Mumbai.
He explained that the main reason is that in the loan market, the rates are significantly cheaper. There is a move where corporates are moving away from bonds and accessing the loan market. With the repo rate at 5.5%, the external benchmark lending rate (EBLR) loans look far more attractive compared to corporate loans at the current level. “So, I think that trend is pretty much evident. The supply will be tepid going ahead also,” he added.
After a quiet phase for bank issuances, State Bank of India (SBI) on October 17 raised Rs 7,500 crore through 10-year Tier 2 bonds, marking the first major bond issuance by a bank in the current financial year. In 2024, top 10 issuers raised Rs 94,164 crore compared to Rs 74,326 crore so far in the year.
“Over the past few months, bond market sentiment has weakened due to a slew of factors. Since last one month banking system liquidity has tightened due to increase in currency in circulation (CIC) and RBI FX operations, pressuring yields at the shorter end of the yield curve,” said Puneet Pal, head-fixed income, PGIM India Mutual Fund.
He added some issuers are likely waiting for a possible rate cut in the December MPC policy. Meanwhile, a few corporates appear to be shifting towards bank loans for funding, dampening the overall issuances.
Experts believe that corporates will likely rely on bank credit going ahead as the external benchmark lending rate (EBLR) loans look far more attractive. In the corporate bond market, yields are still higher due to higher state development loans (SDL) yields. Currently, 10-year AAA paper is trading at 7.25% compared to an average of 7% in June.