India’s busy local-currency rupee bond market is poised to slow after the country’s central bank hinted room for further rate cuts could be limited.
Aggressive liquidity infusions and a series of rate cuts this year, most recently a surprise 50 basis point cut to 5.5% in June, pushed yields to the lowest in three years and spurred a flurry of issuance as borrowers sought to lock in lower rates.
As a result, Indian companies raised a record 6.6 trillion rupees ($77.1 billion) through local-currency notes in the first half of the year, up 29% from the year prior, according to data compiled by Bloomberg.
Underwriters now expect that rush to ebb, citing a policy shift by the Reserve Bank of India to neutral from accommodative and moderating growth prospects. Headwinds from trade and geopolitics are threatening the nation’s economic outlook too.
“Issuance will remain fairly strong, but the pace will not be as frenetic as before,” said Shameek Ray, executive vice president at ICICI Securities Primary Dealership Ltd., pointing to limited room for borrowing costs to fall further.
Yields on Indian debt have since started to climb. After touching the lowest since 2022 on June 6, average yields on top-rated three-year company notes have risen 13 basis points, as of Wednesday.
Still, the recent increases have only pared the drop in financing costs this year.
Monetary policy emerged as the key driver for corporate debt sales in India this year as falling rates lured conglomerates to the market. Grasim Industries Ltd. secured its lowest-cost onshore note since 2020 and the ports unit of Adani Group raised a record sum from the domestic bond market. Jio Credit Ltd., a shadow lender owned by tycoon Mukesh Ambani, sold its first-ever bond.
“Inquiries from companies about bond fundraisings have increased,” said Jigar Vaishnav, director at Tipsons Group. “Abundant liquidity and cheaper borrowing costs have also prompted many companies to borrow locally rather than tapping offshore. It has been a very busy time on the desk.”
Still, global uncertainties and weaker capital spending due to slower economic growth could hurt corporate bond sales in the second half of the year, said Aditi Mittal, director at A.K. Capital Services Ltd., the third biggest rupee bond banker this year.
“We expect the second half may see some slowdown from the current pace, given the expected longish pause in monetary policy,” she said.
Companies may choose loans over bonds as banks pass on the interest rate cuts by lowering lending rates, diminishing issuance, added ICICI Securities’ Ray.
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