Indian state-run companies are gearing up to raise approximately ₹5,000 crore (around $595.61 million) through long-term securities over the next two weeks. This move comes as falling government bond yields and a reduction in state debt supply create a scarcity of attractive investment opportunities for investors.
At least four public sector undertakings (PSUs)—THDC India, NHPC, India Infrastructure Finance Company, and Indian Renewable Energy Development Agency—are preparing to tap the bond market with offerings that will range from 10 to 15 years. These firms, which have not frequently issued bonds in the past, are responding to the current market dynamics, according to sources from three merchant banks involved in the transactions.
While none of the companies commented on the developments, the merchant bankers, who requested anonymity due to their non-disclosure agreements, highlighted the unique timing of these issuances. “With government bond yields having eased and long-tenor yields dipping below 7%, insurance companies that have been receiving consistent inflows are eager to diversify their portfolios with longer-duration, highly rated papers,” stated Aneesh Srivastava, executive director and chief investment officer at Star Health Insurance.
Currently, the yields on India’s 10-year bonds hover around 6.85%, while the 15-year bonds sit at 6.90%. The longer tenors, such as the 30-year and 40-year bonds, range from 6.97% to 7.00%. This favorable yield environment has prompted companies to act quickly to meet their funding needs, rather than waiting until the second half of the fiscal year. The strong appetite from investors and improving liquidity conditions make this an opportune moment for these PSUs to issue bonds.
Analysts attribute the easing of government bond yields to market expectations that the interest rate cycle will turn in favor of borrowers, first in the United States and subsequently in India. The Federal Reserve is anticipated to cut rates as early as September, while many traders are looking toward a potential rate cut by the Reserve Bank of India (RBI) in December.
“In a falling interest rate regime, investors must seek out opportunities to generate additional returns wherever possible,” added Srivastava. This trend aligns with a general market sentiment, encouraging investors to reassess their portfolios for the best risk-adjusted returns.
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At present, the corporate bond yield curve appears slightly inverted, with long-duration bond yields being marginally lower than those for shorter maturities. Sandeep Yadav, head of fixed income at DSP Mutual Fund, noted that he expects the corporate bond yield curve to remain relatively flat. He added that even if the yield curve were to steepen, longer maturities would likely provide greater profit margins for the same yield movement when compared to shorter maturities due to their inherent higher duration risk.
This shift in focus towards long-term securities by PSUs signifies a strategic approach to financing amidst evolving economic conditions. As these companies navigate the complexities of the bond market, their actions may pave the way for other state-run entities to consider similar strategies, particularly in a climate where investor demand for quality debt instruments remains robust.
As the issuances unfold, all eyes will be on how these bonds perform in the current market environment, particularly given the anticipated changes in interest rates. With institutional investors keenly interested in stable returns, the coming weeks may see significant activity in the corporate bond market, led by these public sector offerings.
