Bonds are back in business, and telling us something

Mumbai: The pace of economic recovery is picking up momentum, and it is evident in the unusually large amounts of bond sales this month by the likes of Housing Development Finance Corp (HDFC), India’s biggest mortgage lender, and leading utilities company Tata Power.Railroad financier IRFC and National Highway Authority of India (NHAI) are among the mega infrastructure lenders that have joined index heavyweights in raising funds recently through bonds. Large companies have together raised Rs 30,537 crore through debt issues in the past three weeks, data compiled by JM Financial showed.“Corporates have intensified their bond sales with the economy opening up after the strict lockdown,” said Ajay Manglunia, managing director, institutional and head of fixed income at JM Financial. “The requirement of funds has gone up, with companies returning to normal production. Also, the ongoing festival season is adding momentum to it. The trend is likely to sustain, provided there is no second wave of infections.”Outstanding non-food credit given to individuals and institutions expanded for the first time on a year-to-date basis in this fiscal year, led by demand for retail loans during the festive season, RBI data showed. In the fortnight ended November 6, non-food credit stood at Rs 103.2 lakh crore, slightly more than Rs 103.1 lakh crore reported by banks as on March 27. On an absolute basis, outstanding credit has increased Rs 5,804 crore.Individual issuances above Rs 1,000 crore have been included in the list of the issuances since November 6 to ascertain the pace – and size – of debt fund raising.The spread between triple-A rated bonds and benchmark sovereign debt is now at 50-55 basis points, compared with 75-80 basis points in September. Shorter maturity rates have declined even more steeply.The banking system has a surplus liquidity of more than Rs 6 lakh crore, which is helping moderate the yield curve.“The primary market momentum is indicative of an overall pick-up in economic activity and improved financing environment,” said Kumaresh Ramakrishnan, CIO – Fixed Income, PGIM India Mutual Fund. “Companies now need funds as economic activity gains more traction.” HDFC raised Rs 5,000 crore, offering 5.78% on five-year bonds. NHAI raised a similar quantum, offering 6.94% with 17-year maturity.Some banks are still cautious about lending to longer gestation projects, but the falling rate environment should underpin borrowing from the bond market.Fewer but Larger Deals“The markets are looking beyond the pandemic,” said Shailendra Jhingan, managing director, ICICI Securities Primary Dealership. “There are fewer deals but larger deals. If you set aside regulatory liquidity support, we see traction among the financial companies in the bond market.”To be sure, bond sales were relatively high in the first two quarters of the financial year, but they were primarily driven by special measures aimed at providing liquidity to cash-starved companies, particularly non-bank lenders.IRFC, the financier for railroad projects, sold bonds worth Rs 4,652 crore, offering 6.85% with 20-year maturity. For three-year money Tata Power, not a frequent bond issuer, is paying 6%. The National Bank for Agriculture and Rural Development mopped up about Rs 6,000 crore in two series of bonds.

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