The rush for funds comes against the backdrop of bleak June quarter earnings
In March this year, RBI introduced TLTRO, under which banks can access three-year funds up to ₹1 trillion to invest in corporate bonds
Indian companies raised over ₹2 trillion by selling rupee bonds in the quarter ended 30 June, up from ₹1.3 trillion a year ago, as they tried to insulate their balance sheets from uncertainties related to the coronavirus pandemic.
Bond sales were the highest in April and May, when companies raised ₹1.47 trillion, followed by ₹51,091 crore in June, according to JM Financial Ltd, which compiled the data. Many top-rated firms raised funds under the Reserve Bank of India’s Targeted Long Term Repo Operations (TLTRO), particularly in April. Typically, the first quarter of the fiscal is a lean one for bond sales.
“The quarter was different due to ample liquidity. We saw a healthy level of activity in the corporate bonds market despite the fact that government borrowing was also high. We expect the same trend to continue in the remaining quarters with wider participation," said Ajay Manglunia, head of institutional fixed income at JM Financial.
The rush for funds comes against the backdrop of bleak June quarter earnings. Net sales and profit, adjusted for one-time profit or loss, slumped to a 20-quarter low in the June quarter, Mint reported on Thursday. Most companies have skipped earnings forecasts, and are cutting costs and delaying spending to create liquidity buffers for the later part of the fiscal.
The quarter saw large bond sales by corporates, including Reliance Industries Ltd, which raised ₹24,955 crore; Tata group ( ₹5,700 crore); and L&T group ( ₹11,851 crore). Mahindra and Mahindra Ltd and Crompton Greaves Consumer Electricals Ltdalso raised funds through the corporate bond market this year.
A large number of top-rated non-banking finance companies (NBFCs) too made use of the Reserve Bank’s TLTRO. Rural Electrification Corp. Ltd raised ₹12,854 crore, Housing Development Finance Corp. Ltd ₹15,250 crore and Power Finance Corp. Ltd nearly ₹23,000 crore.
In March this year, RBI introduced TLTRO, under which banks can access three-year funds up to ₹1 trillion to invest in corporate bonds. This was followed by another round of TLTRO to facilitate funding to small- and medium-sized NBFCs. Banks were mandated to deploy these funds within 30 working days.
Banks were the biggest buyers of these bonds, while mutual funds stayed cautious following the meltdown in Franklin Templeton credit risk schemes.
“In Q1FY20, banks were active in deploying their surplus liquidity in a combination of AAA and non-AAA rated bonds through LTRO and TLTRO routes. This has provided a section of non-AAA NBFC/HFC entities with liquidity on timely basis," said Dhawal Dalal, chief investment officer-fixed income, Edelweiss Asset Management Ltd.
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