India Inc’s fund-raising through rupee bonds slowed down in FY24, after a strong growth in the previous fiscal due to a change in taxation rules and as corporates restrained expecting yields to soften. In FY24, companies raised ₹11.06 trillion through rupee bonds, an all-time high, but the 21% growth was slower than the 51% recorded during the previous year.
In FY23, Indian firms raised ₹9.9 trillion in FY23. A similar growth was also recorded in 2021, when corporates raised ₹570,651 crore, a 54.6% rise from ₹570,651 crore in FY20.
“The recent taxation changes in debt mutual funds, which were part of bond ownership, have significantly impacted the flow of capital. Following the regulatory amendments announced in the February 2023 Budget, the tax for the highest slab was increased from 20% with indexation to 39-40% without indexation. Under the current post-tax scenario, investments in these instruments have become less attractive for investors seeking optimal returns,” Marzban Irani, chief investment officer-Fixed Income at LIC Mutual Fund, told FE.
According to Vinay Pai, Head of Fixed Income, Equirus: “HDFC was the largest issuer in FY23 whose market borrowing through bonds in the Indian market was ₹75,000 crore and post the merger with HDFC Bank these issuances ceased to exist. Even though many corporates and NBFCs increased their market borrowings through bonds in FY24, some corporates restrained themselves from long-term borrowings expecting yields to soften”.
“To propel the economic growth to achieve a $5-trillion economy there is a need for strong push towards issuance and subscription of corporate bonds and reducing the burden on the banks. This may require a relook at reducing the taxation between the equity and bonds,” Pai added.
Reliance Industries (₹20,000 crore), Nabard (₹16,572 crore), HDFC Bank (₹15,000 crore) and Goswami Infratech (₹14,300 crore) were among others who issued rupee bonds in FY24.
“Last year (FY23), the higher growth was at a lower base and liquidity was high for low yielding bonds as compared to current market tight liquidity and better returns in equity capital market,” Mahesh Singhi, Founder and MD at investment banking firm Singhi Advisors said.
According to Moelis & Company CEO Manisha Girotra: “It was a bit slower, given manufacturing was slower and bank lines were available. In FY25, we expect manufacturing to pick up with companies increasing production capacities. We can expect heightened activity post-elections”.
“India’s robust economic outlook and easing long term yields continues to be the main driver for the corporate bond market. This demand within Indian corporates is driven by the government’s sustained thrust on unleashing capital expenditure cycle, softer interest rates and progressive policy making. Large issuers including infrastructure firms would continue to lock in funding at current (lower) rates for longer term to drive their long-term growth story,” Sandeep Upadhyay, MD-Infrastructure Advisory at Centrum Capital said.