Manish M Suvarna
Fund-raising through commercial papers (CP) fell 14% month-on-month in December due to a sharp rise in short-term rates after the Reserve Bank of India (RBI) increased the amount to be withdrawn through variable-rate reverse repo auctions. However, issuances of CPs witnessed a 30% rise compared to the year-ago period.
According to the data compiled from NSDL, companies raised
2.48 lakh crore in December, lower than2.89 lakh crore raised in November. Infina Finance, Indian Oil Corporation, Aditya Birla Finance, JM Financial Properties and Holdings and Bajaj Finance were among the top issuers in December.
“Corporate and investors couldn’t match the negotiations of rates which have spiked due to VRRR auctions and issuers finally decided to wait for stability than pay higher yields that resulted in a dip in volumes,” said Ajay Manglunia, MD and head – institutional fixed income at
In December, the RBI increased the amount to be withdrawn through the VRRR auctions, which pushed up short-term rates very sharply, forcing some issuers with lower ratings to remain on the sidelines. Short-term rates have inched up 30-40 basis points since the December monetary policy and low demand from mutual funds.
“In December, the RBI has conducted a lot of VRRR auctions to take surplus liquidity out and that have resulted in money market rates hardening,” Manglunia said.
The central bank has stepped up measures to tighten liquidity through regular conduct on 14-day VRRR and the further conduct of 3-day and 7-day VRRRs every week. Dealers expect the RBI to hike the reverse repo rate in the coming months and short-term rates to rise further by 50-70 basis points till the end of the quarter, as the liquidity normalisation process remains in focus.
The demand from mutual funds also remained low because they were facing redemption pressure into their debt schemes due to quarter-end. Usually, investments by mutual funds slow down at the end of the quarter because of redemptions. Mutual funds are the largest investors in CPs and certificates of deposit.