Rupee loans from Indian banks are cheaper by 100-150 basis points (bps), prompting companies to look for local credit to replace overseas debt coming due. "For an Indian corporate with access to both the domestic and international bond markets, cost of borrowing from the international bond market has gone up by 275-375 bps in dollar terms but has gone up by only 150 bps in the onshore bond market," HSBC's Vinod Venkatesh told Reuters in an interview. "The economics are therefore more in favour of borrowing from the onshore bond markets rather than the offshore markets." The U.S. Federal Reserve has raised the interest rate by 450 bps since March 2022 to 4.50-4.75% and is likely to raise further by as much as 75 bps in the next few months.
Meanwhile, the Reserve Bank of India has raised the repo rate by 250 bps since May 2022 and may opt for just one more 25 bps move up in April. The 10-year U.S. yield has jumped nearly 210 bps since March 2022 and was at 3.91%, while the 10-year Indian benchmark bond yield rose only around 65 bps and was last trading at 7.41%, leading to a sharp compression in spreads.
Venkatesh recommends corporates issue shorter-duration bonds as against longer-duration funding in the near term, citing the possibility of interest rates plateauing out and gradually moving lower.
HSBC expects the RBI to hike repo rate by 25 bps to 6.75% in the next quarter, and forecasts a 25 bps cut in the quarter ending March 2024, bringing the rate back to the prevailing 6.50% level by the end of next fiscal.
The fixed-income official expects local corporate bond issuances to increase this year as debutant issuers explore the market.
"There is an increasing push to access the capital markets and to diversify sources of funding away from being purely reliant just on the bank loan market, and so I think overall corporate bond supply in the onshore bond markets will keep increasing," Venkatesh said.
Indian companies raised 6.75 trillion rupees ($81.52
billion) via private placement of bonds in 2022, according to
SEBI data.
($1 = 82.8050 Indian rupees)
(Reporting by Dharamraj Dhutia and Anushka Trivedi; Editing by
Dhanya Ann Thoppil)
