Tier-II issues in the offing

OUTLOOK: Corporate bonds

The primary corporate bond market is likely to see a lot of tier-II issues from banks. To meet the Basle-II norms, banks need to raise more funds to boost their capital adequacy.

The secondary market will continue to remain active as mutual funds are selling papers owing to redemption pressure.

According to a dealer, some banks offloaded liquid schemes to meet provisioning demand for the second quarter ended September 30.

The primary market last week saw a Rs 700 crore 10-year bond issue from Tata Power.

Currently, the spread between the five-year AAA bond and the comparable gilt is at 70-80 basis points.

However, closer corporate-bank ties are resulting in quotes of 50-60 bps for a AAA corporate. However, there are some market players who are interested in picking up short-tenure corporate bonds on account of the interest rate yield differential and to avoid taking risk on gilts.

Eruch Kapadia, senior manager, treasury, Tata Chemicals:

Fundamentally, the rupee should depreciate because of the rising crude oil prices. But the government has said that they would take measures to keep inflation in control and one measure is to keep the rupee strong.

Also, there has been a significant rise in foreign exchange inflows and with the stock market looking up, more such inflows are expected.

The rupee could rise another 20 paise from current levels. It should broadly trade between 45.70-46.20 rupees per $1 in the near term.

Banks may give the slip

Rising interest rates have been a disincentive for the market. Near-term rates have inched up from 4.60 per cent for the fortnight ended August 31 to 4.68 per cent for the period ended September 15.

The CP market, however, has been active since most corporates, which are in a fix over the borrowing route, are availing of working capital loans through CPs.

Although most public sector undertakings have obtained approval from their respective boards to raise debt, market illiquidity has forced them to postpone their borrowing programme.

Banks' investment in CP has recorded dipped Rs 296 crore for the fortnight ended September 17 to Rs 3,474 crore.