FIIs Queue up for Top Corp Bonds
Prospects of stability and rupee gains spur interest
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.