Mutual funds reduced their exposure to commercial papers (CP) in June in the aftermath of the Infrastructure Leasing and Financial Services (IL&FS) crisis.
According to data released by Prime Database on Friday, holdings of mutual funds in CP in value terms stood at ₹3.72 trillion as on 30 June, down 13.69% from ₹4.31 trillion in the previous month. It also marked a 24.4% fall from the all-time high of ₹4.92 trillion on 31 August 2018.
The highest mutual fund holdings by value as on 30 June were in CPs issued by the National Bank for Agriculture and Rural Development, or Nabard (at ₹24,989.50 crore), Housing Development Finance Corp. (at ₹19,255.00 crore), Reliance Jio Infocomm (at ₹14,516.60 crore), Vedanta (at ₹14,478.80 crore) and Reliance Retail (at ₹14,077.90 crore).
The issuers that saw the steepest fall in mutual fund holdings in commercial papers issued by them in value terms in June were Reliance Industries Ltd, National Housing Bank, Indian Oil Corp. Ltd, Larsen and Toubro Ltd and Oil and Natural Gas Corp. Ltd.
Cholamandalam Investment and Finance Co. Ltd, National Fertilizers Ltd, Power Finance Corp. Ltd and Vedanta saw the highest increase in mutual fund holdings in commercial papers by value in May.
Pranav Haldea, managing director, Prime Database Group, said: “Mutual funds have significantly reduced their exposure to CPs, after the IL&FS crisis last year."
IL&FS had defaulted on its debt in June 2018.
Back then, it had a debt obligation of ₹91,000 crore. The contagion effect from the IL&FS debt crisis spread to at least two other major non-banking financial companies (NBFCs)—Dewan Housing Finance Ltd (DHFL) and Reliance Capital Ltd (RCAP).
According to CARE Ratings Ltd, CP issuances in June aggregated ₹50,950 crore, which was 31% lower than the previous month, and 65% lower than the corresponding month of the previous year.
“Housing finance companies (HFCs) and NBFCs on an aggregate level have raised funds amounting to ₹16,955 crore, which is almost half of the amount raised in the previous month. HFCs accounted for 10.8% of total CP issuances in June while NBFCs accounted for 22.5%. In the corresponding period a year ago, both accounted for almost 60% of total issuances, out of which 22% share was of HFCs and the balance 38% of NBFCs," CARE Ratings said in a report on 16 July.
CARE Ratings added that interest rate cuts by the Reserve Bank of India and the change in the monetary policy stance to accommodative have aided the fall in corporate bond and commercial paper yields in recent months. “In addition, easing of the liquidity conditions in the banking system, along with a decline in GSec yields further supported the fall in yields in both the markets," it added.
Holding of mutual funds in corporate bonds in value terms stood at ₹5.80 trillion in June, down 4.13% from ₹6.04 trillion in May. The highest ever holding of mutual funds in corporate bonds was in September 2017 at ₹6.61 trillion.
The highest mutual fund holdings by value as of June were in corporate bonds issued by Power Finance Corp. (at ₹36,462.30 crore), REC (at ₹35,475.80 crore), Nabard (at ₹30,553.30 crore), LIC Housing Finance (at ₹28,272.50 crore) and Housing Development Finance Corp. ( at ₹23,217.60 crore).