INSUBCONTINENT EXCLUSIVE:
Debt market mutual funds are scampering to load their portfolios with T-bills and shorter maturity instruments of banks as they prepare for
possible higher redemptions in the coming weeks following Friday’s big scare
Trading in corporate bonds issued by non-banking finance is likely to lose sheen for now with ILFS fiasco spooking investor confidence
Commercial paper rates have increased in the last week or so though top-rated companies are still managing to secure better terms
Non-banking finance companies may now have to offer 15-20 basis points higher than the average rate at which they raised money by selling
bonds.
On Friday, two-year maturity bonds issued by the National Bank of Agriculture and Rural Development - the government-owned NBFC -
were traded at 8.90 per cent, about 20 basis points higher than the market rate.
“If the market scare extends this week, redemption
pressure may increase,” said Lakshmi Iyer, CIO -Debt Head-Product, Kotak AMC
“We are trying to maintain cash while cherry-picking stocks
Amid uncertainties, it is better to be inactive rather than active.”
“We are buying certificate of deposits and Treasury bills instead
of focussing on commercial papers, which are illiquid,” she said
CDs issued by banks and T-bills, shorter maturity sovereign papers, are now billed safer bet over CPs.
Top rated companies are continuing to
secure good terms in the CP market though the same cannot be said for lower-rated paper
Last Friday, DHFL Pramerica Mutual Fund bought commercial papers, issued by a top-rated non-banking finance company owned by a conglomerate
at 8.15 per cent, marginally higher than normal rates
"Debt market is undergoing a confidence crises within the overall background of rupee instability volatile asset markets,” said Ashish
Ghiya, MD, Derivium Tradition India
"Illiquidty spreads have added to bond spreads, especially post ILFS incident, leading to lower volumes for corporate bond money market
Institutional lending may slow down for corporates, till confidence crises improves,” he said.
CPs are now yielding five-20 basis points
higher than the rates one or two weeks ago, dealers said.
“Investors have turned cautious,” said Kumaresh Ramakrishnan, head, fixed
income, DHFL Pramerica Mutual Fund
“We are ensuring enough cash level as usual to weed out any pressure that may arise towards quarter-end
But investors are still buying select debt papers.”
The banking system liquidity or cash available in the system is now in deficit for
about Rs 1.2 lakh crore compared with just about Rs 20,000 crore more than a week ago.
Yields even on sovereign bonds have been very
volatile while system liquidity is progressively tightening,” said Suyash Choudhary, head of fixed income at IDFC Mutual Fund
Further the environment for offshore financing remains challenging owing to rise in emerging market risk premia
This combination is leading to significantly tight financial conditions….”
The benchmark yield jumped 20 basis points pulling prices
down in the past one month
This has overall raised the borrowing cost for corporates while investors like mutual funds incur mark-to-market losses making them wary of
fresh buying.
Dynamic debt bond funds have yielded just 1.20 per cent this year, show data from Value Research.
Cash-strapped Infrastructure
and Leasing Financial Services has already defaulted on commercial papers and bond interest payments running into about Rs 300-400 crore
barring other deposits or loan defaults.
This has weighed on the market sentiment
DSP Mutual Fund sold CPs issued DHFL worth Rs 300 crore at a yield of 11 per cent, much higher than than the rate at which the previous deal
happened, fanning speculation that DHFL could be facing liquidity issues, which has been strongly denied by the company.
