To meet their quarter-end funding needs and ahead of the upcoming policy announcement, public sector units (PSUs) are planning corporate bond issues this week.
PSUs Seize Softer Yields Window
For example, Numaligarh Refineries will tap the market on September 22 to raise Rs 5,000 crore through a 10-year bond. National Bank for Agriculture and Rural Development (NABARD) will likely raise Rs 7,500 crore through a three-year bond in the week, according to sources. Rashtriya Chemicals and Fertilizers and Power Finance Corporation are also planning issues this week. Though some of them are regular issuers, they are tapping the market after a gap.
“Issuers were waiting due to the elevated yields. Now when the quarter-end approaches and yields have softened a bit, PSUs are using this opportunity to tap the market before the Monetary Policy Committee meeting in October,” said Ajay Manglunia, executive director – fixed income, Capri Global Capital.
Currently, the 10-year AAA rated paper is trading at 7.25% compared to an average of 7.15% in July and 7.0% in June, according to Bloomberg data.
“The bunching of PSU issuances we are seeing is largely a quarter-end phenomenon, as many of them shore up resources before closing. The MPC adds a layer of timing urgency, since issuers prefer to lock in demand before any potential policy impact,” said V R C Reddy, head of treasury, Karur Vysya Bank.
After a dull activity in the primary market for the past two months due to higher yields and weak market sentiment, there has been some revival in September.
Investor Appetite Shapes Issuance
According to Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP, investor demand for long-term AAA PSU bonds is currently strong due to their limited supply —contrary to the continued long term bond supply from central and state governments auctions. “Issuers may look to take advantage of this window ahead of the October policy amid rate cut hopes and inflation easing expectations,” he said.
As corporate bond yields are still elevated, Srinivasan believes that it may take a while for yields of regular issuers to ease compared to sharp corrections expected for first-time or less frequent PSUs as some plan to tap the market after a long gap. Experts expect the corporates and PSU will not wait that longer to tap the market due to higher yields.
Market participants said that demand from mutual funds will likely to be muted due to quarter-end redemption pressures and less appetite. However, demand from banks, pension funds, and EPFOs still continues.
Corporates raised Rs 3.42 lakh crore in the first quarter of FY26 compared to Rs 1.27 lakh crore in the second quarter till August, according to data from Primedatabase.