Indian firms raise record funds via corporate debt in 2024; to rise further

Indian companies' fundraising through corporate bonds hit a record high in 2024, aided by declining yields and stronger appetite for long-term notes, and investors expect issuances to remain robust in 2025. 

Indian firms raised Rs 10.67 trillion ($124.81 billion) through the sale of bonds till Dec. 27, a 9 per cent jump over 2023, data from information provider Prime Database showed. 

"Fundraising has seen a boost with corporates seeing a need to diversify, and bank lending seeing some moderation with slower deposit growth," said Vinay Pai, head of fixed income at investment banking firm Equirus. 

With nominal growth of the Indian economy expected to remain between 10 per cent-12 per cent, credit should also grow at more than 12 per cent and the demand could be split between banks and bond markets, he said. 

 

"The rise in issuance is likely to be absorbed easily, driven by rising investor demand following Indian government bonds' inclusion in multiple global bond indexes - freeing up more opportunities for domestic investors," said Suresh Darak, founder of Bondbazaar, an online trading platform. 

Yields on corporate bonds fell between 25 and 50 basis points this year, tracking government bond yields. 

India's central bank is expected to start lowering rates from February and is likely to cut by at least 50 bps in the first half of 2025, which would further push yields down. 

Slowing credit growth 

Lower lending from banks will see companies making a beeline to borrow funds from corporate bond market in 2025. 

Banks are cutting credit growth to assuage the central bank's concerns over the widening credit-deposit gap, said an executive director with a state-run bank, requesting anonymity. 

Bank of Baroda in October reduced its credit and deposit growth guidance for fiscal year 2025, while State Bank of India lowered its deposit growth forecast last month. 

"Since deposit mobilisation is a challenge, and assuming rate cut will happen in February, there is a preference to trim down credit growth to keep CD (credit-deposit) ratio in check," the bank official said. 

Long bond preference  Many companies have started issuing more long-term bonds, propelled by rising demand from insurers - who typically prefer long-term notes - and expectations of the February rate cut. 

Total fundraising through up to five-year bonds eased 2 per cent or Rs 9,400 crore on-year in 2024, while issues of above-five-year bonds rose 19 per cent or Rs 98,200 crore. 

Investors and bankers are confident that the rising corpus with mutual funds and long-term investors would generate enough demand. 

"From the demand side, flows with the long-term investors in pension funds and insurance sector have increased...this has been sufficient to match bond market supplies," Equirus' Pai said. 

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