FIIs Queue up for Top Corp Bonds

Prospects of sta­bil­ity and ru­pee gains spur in­ter­est

The Economic Times - - Markets & Finance - SAIKAT DAS

For­eign in­vestors are lap­ping up top-rated blue chip cor­po­rate bonds in 1-3-year ma­tu­ri­ties, driven by a sense of eco­nomic op­ti­mism, which is the re­sult of a sta­ble govern­ment, steady ru­pee and a ban on Trea­sury bill in­vest­ment.

Com­pa­nies such as Hous­ing De­vel­op­ment Fi­nance Cor­po­ra­tion (HDFC), Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion (REC), Power Fi­nance Cor­po­ra­tion (PFC) and Power Grid Cor­po­ra­tion (PGC) are some of the most traded se­cu­ri­ties with fall­ing yields, traders told ET. Bond yields move in­versely to prices.

Over­seas in­vestors, in­clud­ing multi­na­tional for­eign banks, and sov­er­eign funds are buy­ing these bonds from pri­mary as well as sec­ondary mar­ket – though mainly from the lat­ter – at an aver­age lot of about .` 200-300 crore. For ex­am­ple, the AAA-rated HDFC bonds ma­tur­ing in 2016 are cur­rently quot­ing at a yield in the range of around 9.25-9.35% while sim­i­lar ma­tu­rity state-owned PFC bonds are quot­ing a yield of around 9.05-9.15%.

“A ban on Trea­sury bill in­vest­ment cou­pled with the ris­ing ru­pee have made a strong case for over­seas in­vestors to pour money into top-rated In­dian cor­po­rate bonds,” said Alok Sa­hoo, head, fixed in­come, Bar­oda Pioneer Mu­tual Fund. “Due to their heavy buy­ing, yields have shrunk 20-30 ba­sis points over a month in cor­po­rate bonds is­sued by both PSU and pri­vate com­pa­nies.” Those bond rates are about 4075 bps higher than the 10-year bench­mark govern­ment yield while the yield for a sim­i­lar ma­tu­rity govern­ment paper with a 7.02% coupon comes at about 7.54%, 161-181 bps lower than those of HDFC or PFC bonds. A ba­sis point is 0.01%.

In its first bi-monthly mon­e­tary pol­icy on April 1, the RBI had banned over­seas in­vest­ment in Trea­sury bills – govern­ment se­cu­ri­ties with be­low 1-year ma­tu­rity. The ru­pee dropped 13.01% in 2013, but climbed back 5.49% so far this year. More­over, a sta­ble govern­ment led by PM-des­ig­nate Naren­dra Modi has rekin­dled hopes of an eco­nomic re­vival of sorts. The pri­mary bond mar­ket, which was fac­ing a drought due to reg­u­la­tory is­sues, is show­ing signs of life as some non-bank­ing fi­nance com­pa­nies like L&T Fi­nance have al­ready raised funds.

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