NBFC liquidity crisis fallout: Mutual funds investment in CPs hits 11-month low; key things to know

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Published: February 26, 2019 1:05:05 PM

As a major fallout of the recent liquidity crisis in the NBFC space in India, mutual funds have pulled out heavily from their investments in CPs, according to a report. We take a closer look.

After the liquidity crisis triggered in the NBFC space, MFs reduced almost one-fourth of their investments from CPs, CARE’s latest report on mutual fund industry said.

As a major fallout of the recent liquidity crisis in the NBFC space in India, mutual funds have pulled out heavily from their investments in CPs, according to a report. After the liquidity crisis triggered in the NBFC space, MFs reduced almost one-fourth of their investments from CPs, CARE’s latest report on mutual fund industry said. “The percentage share of funds deployed in CPs of NBFCs was at the lowest in Jan-19, since the past 11 months. As of Jan-19, debt MFs held Rs. 1.16 lakh crore funds in CPs of NBFCs,” noted the CARE report.

NBFCs are the biggest issuers of debt in the corporate bond market, controlling nearly 90% of the volume. With the 30% spike in fresh issuances in January, their share has clawed backed to the near normal levels to 82.2% of the volume. The industry reeled under the NBFC liquidity crisis, and between September and November 2018, issuances rose each month rising to almost 80% in November 2018. But the liquidity challenges deepened in December as bond sales by NBFCs plunged almost 30%, noted a recent PTI report.

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While mutual funds have pared their investments in CPs, deployment of funds in corporate debt paper of NBFCs show a different trend, wherein Oct-18 onwards the exposure to NBFCs rose and reached Rs.1.18 lakh crore in Jan-19, notes CARE. “As of Jan-19, exposure to CPs and corporate debt paper is at par, compared with July-18 levels where CPs had about 50% higher investments compared with corporate debt papers,” the report added.

Taking stock of the overall growth of the mutual fund industry, CARE noted that the Indian Mutual Fund (MF) industry grew to Rs.23.37 lakh crore in Jan-19, registering a growth of 9.4% over March-18, which translates to an asset base addition of Rs. 2.01 lakh crore in FY19 (up to Jan-19). “However, this growth rate of 9.4% is much lower compared with the growth of 28%, witnessed in Jan-18 over March-17,” said the report.

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