Fundraising by corporates through commercial papers (CPs) surged 60% in November despite the hardening in rates in the money market due to tighter liquidity. Companies raised Rs 26,000 crore in November, compared with Rs 16,300 crore in October, according to data provided by India Ratings & Research. Funds were primarily raised to meet working capital requirements.
“When liquidity is comfortable and rates are low, companies are not in a hurry to raise funds, but when the availability of money is less, everybody would like to pre-emptively cover themselves,” Ajay Manglunia, managing director and head of investment-grade group at JM Financial, told FE. “With tighter liquidity, everybody wanted to have sufficient cash with them.” Corporates turned to the money market as banks have also raised rates, he added.
CP is a debt instrument issued by companies to meet their short-term financing requirements from the money market. Among major issuances, Tata Power Company raised Rs 1,650 crore, Sikka Port and Terminals mopped up Rs 1,400 crore and L&T raised Rs 1,250 crore through CPs last month.
“Corporates raised funds largely to meet higher working capital requirements. The third quarter is usually better for the credit growth in sync with corporate activities, therefore working capital requirement is also expected to be high. And with elevated input cost owing to higher inflation, overall requirement for CPs will be high,” said Soumyajit Niyogi, director – core analytical group, India Ratings & Research.
Overnight rates in the money market were hovering in the 6.75%- 6.85% range in November, compared with 6.65%-6.75% in October. Rates have been inching upwards in the past few months due to tighter liquidity. The Reserve Bank of India has made clear that it is not comfortable with surplus liquidity in the system. Higher liquidity prompts banks to lend generously, which, in turn, fuels inflation.
CP issuances are likely to remain high in coming months as the central bank is expected to keep liquidity tighter and the credit demand usually remains high in the second half of the financial year.
Total CP issuances by NBFCs, housing finance companies and corporates were around Rs 62,500 crore in November, according to India Ratings & Research.