Clarification on investment ceiling holds the key

Outlook/ Corporate bonds

 This is because most of the banks are heavily invested in short-term mutual fund schemes and if these investments come under the ceiling, then banks will have to pare their exposure to mutual funds. Only after that can they invest in bonds.

 Moreover, fresh bond issues could only come up after the issuing companies get listed. Last week saw deals being clinched among mutual funds as they are the only entities allowed to invest in unlisted papers.

 In fact, it is also expected that similar guidelines prohibiting mutual funds exposure in unlisted bonds is also under consideration.

 Commercial paper

 The commercial paper market is likely to remain lacklustre till the RBI clarifies that investments in CPs will be out of the 20 per cent limit specified for unlisted bonds.

 Bank dealers feel that if no clarification comes then banks will continue to stay away from the CPs till these are issued by listed companies.

 The market has also been rendered illiquid as the banks feel that their investments in the CPs might come under the limit of 20 per cent allowed for unlisted bonds and securities.

 Mibor linked papers on the other hand have completely stopped as these are considered to be unlisted.

 Therefore, the short term avenues for corporate to raise funds through the bond route have virtually dried up.

 The secondary trades are also not happening and the issuers are preferring to keep them till maturity, said a dealer.

 Most of the companies who used to approach the market frequently are considering listing and till then the market will remain dry, he added.