off-the-wire

India's long-term investors to absorb rising near-term bond supply – analysts

Kitco Media
By Reuters
Published:
Updated:
Reuters
By Dharamraj Dhutia MUMBAI, Feb 17 (Reuters) - The sharp uptick in longer-duration corporate bond issuances in India, especially from state-run companies, is likely to find ample demand from insurance companies and provident fund houses over the next two months, analysts said.


"The month of February and March is when the insurance sector gets maximum inflows. Pension funds (PFs) are also active. So we see good demand for AAA long-dated public sector and corporate bonds," said Sujata Guhathakurta, president – debt capital market and infrastructure financing at Kotak Mahindra Bank said. Beginning this week, state-run companies and banks are set to raise around 320 billion rupees ($3.87 billion) through longer-duration bonds following a 250-billion-rupee issue by Housing Development Finance Corp , the largest-ever bond issue by an Indian corporate.


"The growing books of pension funds, provident funds and insurance companies are enough to take care of these corporate bonds of state-run companies that are coming up with longer duration papers," said Arun Srinivasan, head of fixed income at ICICI Prudential Life Insurance. Even as the debt supply gets absorbed, there may be a slight uptick in yields as compared to the last few months on the back of rising interest rates and bets of further hikes, analysts said. From a supply perspective, however, due to adequate issuances in the current financial year, investors may not have to chase issues at sharply lower-than-prevailing yields as was the case last year, they added. In March 2022, HDFC and ICICI Bank had raised an aggregate of 180 billion rupees via 10-year securities, at coupons which were just around 10 bps higher than prevailing government bond yields.


Corporates generally pay a higher yield for their fundraising as compared to risk-free government bond yields. HDFC's 10-year issue on Thursday was at a 7.97% coupon, around 50 bps higher than the government yield on an annualised basis.


"Whatever supply at the longer end we would be witnessing till March would be one of the last for the near term. April-May is generally light in terms of bond issuance from public companies," said Ajay Manglunia, managing director and head of investment grade group at JM Financial. "So long-term investors are also keen to lock in their funds".
Below is the list of companies with their fundraising plans.
Companies Fundraising in billion rupees HUDCO 20 NHPC 9.96 PGC 21.2 NABARD 6.84 SBI 100 (bids on Monday PFC 34 (bids on Monday) IRFC 25 (planned) IIFCL 25 (planned) DME Development 50 (planned) NABARD - green bonds 50 (planned) NHB 25 (planned) ($1 = 82.7800 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Swati Bhat and xxx)

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