Indian companies are rushing to raise short-term debt after the central bank's measures to support the rupee triggered a sharp fall in borrowing costs. According to Business Standard, companies, led by non-banking financial firms, are raising more than ₹310 billion ($3.24 billion) through up to five-year bonds this week. The supply represents one-third of what was raised in April and May, as reported by Reuters. This surge in corporate bond issuance comes as the Reserve Bank of India announced comprehensive measures to attract foreign inflows and support the rupee, creating favorable conditions for corporate borrowing. Four merchant bankers confirmed this active fundraising trend, with non-banking financial firms leading the charge. The latest data shows borrowers raised around ₹27,000 crore this week as softer yields lowered costs, with another ₹13,000 crore scheduled next week according to Business Standard.
Indian government bonds ended higher on Thursday after a choppy trading session, as lower oil prices offset concerns over renewed escalation in the U.S.-Iran conflict. According to The Economic Times, the yield on the benchmark 6.94% 2036 bond ended at 6.9240%, compared with Wednesday's close of 6.9431%. Yields move inversely to bond prices, indicating positive sentiment in the fixed-income market. The yield on the 10-year government bond softened almost 9 basis points this week, reflecting improved market conditions. Thursday marked a positive performance for Indian government bonds, buoyed by falling oil prices that alleviated fears tied to the U.S.-Iran crisis.
The government and the Reserve Bank of India announced measures to attract foreign inflows, support the rupee and strengthen external balances, helping keep sentiment positive. As reported by The Economic Times, these measures are expected to spur bank deposits and lower the need to raise market-based borrowings in the near-term. The RBI's comprehensive approach has pushed corporate borrowing costs lower by 40-45 basis points, per LSEG benchmark 'AAA'-rated corporate bond yields of up to five years, while the spread over government bonds has narrowed. The RBI on Friday announced a raft of measures aimed at drawing dollars into the country, including raising subsidised deposits and incentivising banks and state-run companies to raise funds overseas. The central bank's decisive action to lure foreign investors and stabilize the rupee has created a favorable atmosphere for both government and corporate bond trading. Yields on high-rated corporate bonds have softened by nearly 50-70 basis points following the RBI's recent measures to attract inflows through FCNR(B), external commercial borrowing, and other channels, with growing market confidence that policy support will help stabilise funding conditions and the rupee.
Corporate bond yields had risen to their highest in seven years in May, but the RBI's intervention has significantly improved market conditions. State-run REC raised three-year funds at a coupon of 7.34% earlier this week, much lower than prevailing levels in the secondary market. Similarly, NABARD raised funds for three years at 7.34% after cancelling a similar issue in May where rates could have touched nearly 8%. Major non-bank lenders including Bajaj Finance (₹85 billion), Muthoot Finance (₹27.5 billion), Bajaj Housing Finance (₹20 billion), and L&T Finance (₹15 billion) are lining up debt sales. Ajay Marwaha, head of fixed income markets at Nuvama, noted that a rise in overseas borrowings could reduce the need for local debt supply, leading to a rally in bonds below five years. Infrastructure financier NaBFID raised ₹5,000 crore through two tranches of non-convertible debentures on Friday, accepting bids worth ₹2,500 crore in a 10-year bond at 7.66% yield and ₹2,500 crore in a three-year bond at 7.37% yield. Issuance activity has also broadened across maturities, with several issuers raising funds through five-year and 10-year bonds as borrowers seek to term out liabilities amid uncertainty over interest rates and inflation.
The revival in the primary market comes after comparatively muted activity in the first two months of the current financial year, with elevated yields prompting borrowers to tap bank loans. Indian companies raised a little over ₹1.07 trillion through the domestic bond market in April and May, down nearly 58% from the year-ago period and the lowest mobilisation in the first two months of a financial year since FY23. Market participants attributed the sharp decline in issuances to elevated bond yields amid geopolitical tensions in West Asia. Venkatakrishnan Srinivasan from Rockfort Fincap LLP noted that the recent surge reflects issuers making a beeline to the bond market to lock in funding while the issuance window remains favourable, with many issuers now comfortable locking in current yields rather than remaining exposed to future benchmark resets. Ajay Manglunia from Capri Global Capital explained that as market stability has improved and yields have softened, planned issuances are now returning to the market, leading to a pickup in corporate bond supply. The issuance pipeline remains active with Housing and Urban Development Corporation (HUDCO), Small Industries Development Bank of India (SIDBI), and Rural Electrification Corporation (REC) planning to raise a combined ₹13,000 crore through bond sales next week. Public-sector institutions including NaBFID, NABARD, HUDCO, SIDBI, REC, and LIC Housing Finance, alongside private-sector borrowers such as Bajaj Finance, Bajaj Housing Finance, Tata Capital, HDB Financial Services, Sundaram Finance, Kotak Mahindra Prime, and L&T Finance have either tapped the bond market recently or are scheduled to raise funds in the coming days.
