The total amount raised by firms via corporate bonds in the first half of this fiscal year (FY) was Rs 4.98 lakh crore, up 6 per cent YOY. Only Rs 4.7 lakh crore was raised during the corresponding period last year, as per data from market research firm Prime Database. Reportedly, the growth can be attributed primarily to more institutions tapping the bond market primarily because of lower yields. Further firms and investors feel they need to diversify their borrowings and hence higher high domestic demand.
Even lower-rated NBFCs began accessing the bond market after the Reserve Bank of India raised risk weights for NBFC borrowing in November of last year. Borrowings from non-banking financial companies surged 3 per cent to Rs 1.64 lakh crore during the same time period. In November 2023, the RBI had increased the risk weight on NBFCs by 25 per cent to mitigate potential risks in these segments. Then, non-banking financial companies (NBFCs) and other corporations have shifted towards bond and non-convertible debenture (NCD) issuances, a trend exasperated by shrinking fixed deposits in banks and complex capital requirements.
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Vishal Goenka, Co-Founder of IndiaBonds.com, explained that - “NCD issuances have gone up due to solid economic growth, higher demand and NBFC borrowing restrictions. Amidst solid macroeconomic growth, naturally, the demand for credit capital to fund India’s growth will grow. Capital markets in India have developed further due to Global Index inclusions which have focused on demand for fixed income and created a conducive environment for NCDs."
"The rise of online bond platforms has further created demand for NCDs by introducing new investors who can now easily access bonds online. This gives issuers an opportunity to tap this new investor segment," he added.
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"Bank deposit ratios have been lower than their credit growth and many of them have issued infrastructure bonds to boost their liability side. Restrictions on banks to lend to NBFCs have resulted in them accessing the bond markets for their needs leading to growth in issuances,” he said.
Latest Corporate Bond Inflow Data
As per AMFI monthly data, corporate bond funds saw the maximum inflows among debt fund categories, Rs 5,039.07, followed by Gilt funds, long-duration funds, and Short-Duration funds in September 2024.
The 10-year Indian Government Bond (IGB) yield has shown a slight dip to around 6.77 per cent, amidst concerns about global interest rates and domestic inflation. Demand for government securities is supported by stable inflation and economic growth, noted Mirae Asset Mutual Fund in a note. Corporate bond spreads remain tight, and investment-grade debt is holding up well. However, higher yields have increased borrowing costs for lower-rated companies.
