 "Corporate bonds")
Public issues of corporate bonds this financial year rose to a four-year high owing to growing enthusiasm among retail investors and the rise in the cost of borrowing from banks, market participants said.
As of November 2023, companies and financial institutions raised Rs 13,742 crore through public issues of non-convertible debentures (NCDs), the highest since 2019-20, when Rs 15,068 crore was raised, according to the Securities and Exchange Board of India (Sebi) data.
As of November, Power Finance Corporation raised the highest amount -- Rs 2,824 crore.
Last financial year, there were issues of Rs 9,211 crore.
Market participants said the issues might touch Rs 20,000 crore by the end of March.
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Retail and high-net-worth (HNI) investors are increasingly gravitating towards public issues of bonds, they added.
A factor in this is the perceived lack of issuer information in private placement, particularly when investors take part in secondary-market transactions. Additionally, public issues fall under the direct watch of Sebi, providing an added layer of security. Notably, public bond issues are often backed by collateral, enhancing the appeal for risk-conscious investors.
The noticeable surge in demand from retail investors for bond instruments has been attributed primarily to changes in tax laws, affecting medium-term note issuances and debt mutual funds.
Retail investors and HNIs are actively seeking alternative investment opportunities that promise returns higher than traditional avenues like banks.
“Most of the issuers who tap the public market are with a lower credit rating and they find it difficult to garner a large amount through private placement. Considering the limited investor appetite from institutional investors, these issuers prefer to diversify their borrowing,” said Venkatakrishnan Srinivasan, bond market veteran, founder and managing partner of Rockfort Fincap LLP.
Market participants said this trend in public bond issuances would persist next financial year. This financial year’s robust pipeline, especially in the remaining three months, indicates a continued appetite for public issuances.
“Everybody is keen to diversify and wants to assess the retail pool, which is becoming larger and, in fact, retail is also keen to get better rates,” said Ajay Manglunia, managing director and head (institutional fixed income), JM Financial.
The Reserve Bank of India is prodding non-banking financial companies (NBFCs) to diversify their funding requirements by lowering dependence on banks. In November, the regulator increased the risk weighting on bank loans to NBFCs by 25 percentage points in cases where it is below 100 per cent, according to external ratings. This will increase NBFCs’ borrowing cost from banks.
