Corporate bond yields — or the borrowing cost for companies — have come down by anywhere between 25 and 50 basis points over the past couple of months. Shriram Transport Finance, which raised five-year bonds at 9.95% in November 2014, was recently able to pick up money at 9.35%.
Ahead of the Reserve Bank of India’s (RBI) review of monetary policy on Tuesday, the yield on the benchmark fell to 7.65% on Monday, the lowest level since July 15, 2013, when the yield had hit 7.56%. Shashikant Rathi, senior vice-president at Axis Bank, believes that with inflation benign and the fiscal deficit expected to be reined in, the cost of money could drop further.
LIC Housing Finance, which had raised 10-year bonds at 9.22% in October 2014, had recently raised funds through bonds at 8.4%, seeing a drop of 60 bps in the borrowing cost.
“There is an anticipation that the RBI will have a dovish tone and there is a small section that expects the RBI to further do some rate easing. It is a combination of these two factors which is keeping the market a little bit buoyant,” said Lakshmi Iyer, chief investment officer-debt at Kotak AMC.
Foreign Institutional Investors (FIIs) have poured in more than $3 billion dollars since the beginning of the year, bulk of which has come into the corporate bonds.
“Liquidity in corporate bond market because of the FII inflows has also helped in the narrowing down of spreads,” said Ashish Sable, senior vice-president, debt capital markets at SBI Capital Markets.
AAA-rated Rural Electrification Corporation (REC), which had raised funds at a coupon of 8.57% before the repo rate cut on January 15, was recently able to issue bonds at a coupon of 8.23%.
In next few days, state-run Housing and Urban Development Corporation (Hudco) may tap the bond markets to raise about R700 crore through 5-year bonds, said sources, adding the company may be able to issue bonds at a coupon rate of 8.40%.