Issuances also declined 24% on a year-on-year basis. Dealers said most companies refrained as they had already borrowed heavily in September.
Fund-raising through issuance of corporate bonds, across ratings, fell almost 50% on a month-on-month basis in October, as issuers stayed away after yields on these instruments rose by 5-10 basis points. Issuances also declined 24% on a year-on-year basis. Dealers said most companies refrained as they had already borrowed heavily in September.
“Expectations were building up that the policy normalisation could start from October MPC, which probably led to increased borrowings in September (almost double of August 2021). As a result, issuances in October were lower, at about 50% of September numbers,” said Anand Nevatia, fund manager with Trust Mutual Fund.
According to Sebi data, companies, banks and financial institutions raised Rs 46,844.59 crore in October, against Rs 92,726.69 crore in September, and Rs 62,330.82 crore in October 2020. Of the total funds raised in October, four banks – State Bank of India, Bank of Maharashtra, IndusInd Bank and Canara Bank – raised Rs 11,300 crore by issuance of Tier-I and Tier-II bonds.
Apart from this, State Bank of India, National Bank for Agriculture and Rural Development, Embassy Office Parks REIT, IndusInd Bank and Housing Development Finance Corp are among larger fundraisers in October, according to data available on the electronic bidding platform of the BSE and the NSE.
The issuances dipped in October mainly because the central bank in the monetary policy started fine-tuning surplus liquidity from the banking system through VRRR auctions that led to rates on short-term instruments rising. Currently, liquidity in the banking system is estimated to be in surplus of around Rs 8 lakh crore.
The central bank’s rapid liquidity management through VRRRs has led to a surge in the weighted average reverse repo rate, which has increased by 42 basis points from mid-September to 3.79%, a Kotak Mahindra Bank report said. This was supported by a higher cut-off set by the central bank in multiple reverse repo auctions, which made market participants expect that the reverse repo rate will be hiked in the December policy.
The yield on AAA-rated corporate bonds increased by 5-10 bps in October and is now trading in the range of 5.34-38% on three-year papers, 5.82-90% on five-year papers and 6.88-95% on 10-year papers.
Dealers with some issuers said most companies are waiting for the central bank’s stance on the reverse repo rate hike in the December policy. “If RBI does not hike rate, we can expect more companies and banks to tap the market in coming days,” one dealer said.