By Hariprasad Radhakrishnan
Even as the commercial paper (CP) market veered towards better-performing NBFCs leaving out other non-banks, issuances by public sector undertakings (PSUs) and corporates found more takers in 2019.
As of October, the value of CP issuances by private sector NBFCs came down to 21.2% of the market share at Rs. 2.55 lakh crore, against 38.2% (Rs. 4.63 lakh crore) in the year-ago period, data from Prime Database showed. While top-rated NBFCs have been able to tap the CP market, others had to look for other avenues to raise funds, including bank credit and overseas markets.
Meanwhile, the share of PSUs in the CP market soared to 27.1% at Rs. 3.27 lakh crore, from 11% (Rs. 1.33 lakh crore) a year ago. Private companies in the manufacturing and services sectors witnessed a similar rise in capital raised to 26.7% (Rs. 3.22 lakh crore) from 18.7% (Rs. 2.26 lakh crore).
Siddharth Chaudhary, senior fund manager – fixed income, Sundaram Asset Management Company, said the responses from the Centre and the RBI, including the repo rate cuts, had ensured a large amount of liquidity in the system. “This has meant faster transmission of lower rates at least in capital markets. The first beneficiaries have been top-rated issuers with better asset quality metrics and those without confidence-related issues.”
As against the cumulative reduction in the policy repo rate by 135 bps during February-October 2019, transmission to various money and corporate debt market segments ranged from 137 bps (overnight call money market) to 218 bps (3-month CPs of non-banking finance companies), according to the monetary policy note by the RBI.
Murthy Nagarajan, head – fixed income, Tata Mutual Fund, said PSUs have been tapping both the bond and CP markets. The reduction in sectoral exposure limits by the Sebi has also led to lower investment in debt papers. “The ability of mutual funds to support them — even the better names — is restricted to only 30% of the portfolio,” says Nagarajan.
Meanwhile, NBFCs that were facing headwinds have started to focus more on the liability side and managed to improve their asset-liability profiles even at the cost of growth, said Chaudhary.
During 2019, the yield on CP issuances witnessed a decline in the second half of the year — a majority of CP yields that remained elevated in the 7-8% bracket until May fell to below 7% from June onwards.
Even as the mix of CP issuances changed, the size of the market remained almost unchanged, witnessing only a marginal decline of 0.3% as of October, compared with the year-ago period. The total issuance for the period stood at Rs. 12.08 lakh crore, marginally lower than Rs. 12.11 lakh crore a year ago.
Market participants expect the current trend may take some time to change. “Going ahead, this polarisation in terms of acceptability of issuers may continue for some quarters. However, as the industry profile improves, some more names will become acceptable to investors,” said Chaudhary.