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Public issue of corporate bonds, including tax-free bonds, met with larger success in the current fiscal compared with previous fiscal. The key reason being the coupon rates was much attractive for the investors in a slowing inflation scenario.
According to data from Securities & Exchange Board of India (Sebi), in the current fiscal till January 20, corporates raised Rs 30,088.78 crore through public issue of non-convertible debentures compared with a mere Rs 16,982.05 crore in the previous fiscal. This means a growth of 77% so far.
“The rate of return in tax free bonds as well as retail issue of corporate bonds were higher due to which these bonds became attractive,” said Badrish Kulhalli, head of fixed income at HDFC Life Insurance.
For example this fiscal state-run Rural Electrification Corporation (REC) raised Rs 3,440.60 crore through tax-free bonds compared with Rs 2,017.35 crore previous fiscal. In December 2012, the company was offering coupon rate of 7.72% per annum (p.a.) for 10 years maturity and 7.88% p.a. for 15-years maturity in 2012 for retail investors.
But in August-September 2013 the offering for retail investors were 8.26% p.a. for 10 years maturity and 8.71% p.a. for 15 years maturity respectively. There were also 20 years maturity bonds offers by the company at coupon rate of 8.62% p.a.
Similarly since corporate bonds yields were also rising, the coupon rate for retail issue of bonds were much attractive compared with last fiscal.
“There were a lot of public issue of tax-fee bond from public sector undertakings. They were received well by the retail investors because the returns from these bonds were attractive. The sanctioned limit by the government for tax-free bonds for the current fiscal was also reduced to Rs 50,000 crore from Rs 60,000 crore the previous fiscal. In this fiscal most of the amount out of this Rs 50,000 crore has been raised. The pricing of these tax-free bonds is fixed keeping in mind the 10-year government bond yield. This fiscal yields rose due to which the pricing was attractive,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
The yield on the 10-year benchmark government bond is currently at 8.77% while at the start of this fiscal on April 2 it was at 7.99%. Besides that the Consumer Price Index (CPI) inflation is now much lower than what it used to be in 2012.
January CPI inflation slows to 24-month low of 8.79%. Due to slowing inflation, these bonds make good investment options. Currently Ennore Port’s public issue of tax-free bonds is open. For retail investors, the coupon rate is 8.61% p.a. for 10 years maturity, 9% p.a. for 15 years and 20 years maturity.
