Even though corporates are rushing to the bond market, it is too early to see any economic recovery in the move, say analysts. Experts tracking corporate bonds insist that the bulk of the money raised from the market has been to substitute high-cost loans.
Says M R Madhavan, vice-president, research, Bank of America: "We do not see any major pick up in the investment. It seems that the new papers are part of the roll over exercise." Jayesh Doshi, general manger, treasury, Gujarat Ambuja, also believes that most of the amount raised are to refinance the corporates' old loans and to meet working capital expenditure or some other small needs.
The analysts' views are based on the latest data available on the industrial production. The year-on-year industrial production is still low at 2.9 per cent in April 2002 and the capital goods production in the that month was actually one per cent down compared to the same a year back. In April 2001 the growth of industrial production and production of capital goods were at 2.6 per cent and -4.4 per cent, respectively.
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Analysts say the economic scene is marginally better than the last year, but there is not enough evidence that the economy is on the recovery path. Hence, new loans raised by corporates are probably to pay their old dues and replace high cost loans raised earlier.
Points out Sanjit Singh, fixed income analyst, ICICI Securities and Finance: "During the year the economy may recover. But at present as the growth of the investment goods is still poor we feel that papers are being floated to retire high cost loans."
Vikram Nanivadekar, research assistant, Credence Analytics says: "The rush of corporates to the bond market may be an initial sign of economic recovery. However, it is too early to comment on it." He adds that the hay days in the government security market are over and hence the investors in large numbers are coming to the corporate bond market. "As it means the dip in the yields, the corporates are floating papers at low coupon to substitute costlier loans raised earlier," Nanivadekar avers.