Mumbai: Indian companies are likely to step up their fund-raising plans as borrowing costs ease after the Reserve Bank of India slashed rates over the weekend.
But fresh federal bond supplies to the tune of Rs45,000 crore between now and late-February are expected to dim appetite for government paper, resulting in narrower spreads between corporate and sovereign debt.
RBI slashed its main lending and borrowing rate by 100 basis points each and the government separately announced $4 billion of extra spending targeted towards battered sections of the economy.
The increase in government borrowing over the next few months will lead government bond yields to fall more slowly than corporate debt yields, compressing spreads, said Nirav Dalal, country head - debt capital markets at Mumbai-based YES Bank.
Analysts expect the central bank to cut rates further to boost sagging growth and revive investor appetite.
Over the last two months, the central bank has lowered its short-term lending rate by 250 basis points and slashed banks’ reserve requirements by 350 basis points.
State-run Power Grid Corp of India plans to raise at least Rs1,000 crore through a private placement bond issue likely to open from Monday.
Banks may also take advantage of the current dip in yields because of the rate cuts to raise money for lending, after the government on Sunday announced a package of measures to boost sagging economic growth, merchant bankers said.
The yield on Reuters’ benchmark five-year corporate paper was at 10.16%, sharply lower than 11.15% in the previous week. The spread between the five-year corporate and government debt was at 327.15 basis points compared with 389 the previous week.