Ner­vous In­dian com­pa­nies buy the short­est-term debt they can

Gulf Times Business - - BUSINESS -

Cor­po­rate trea­sury de­part­ments in In­dia have be­come so con­cerned about credit risk they’re in­creas­ingly park­ing their cash in se­cu­ri­ties ma­tur­ing overnight. As­sets with overnight funds soared to Rs123bn ($1.8bn) last month, from 39bn ru­pees in Septem­ber, as com­pa­nies chose safety over re­turns in the wake of a rare debt de­fault, data from Morn­ingstar In­vest­ment Ad­viser In­dia Pvt show. Strong de­mand has seen five firms, in­clud­ing Reliance Nip­pon Life As­set Man­age­ment Ltd, lin­ing up of­fer­ings.

Overnight funds could gain more heft if the reg­u­la­tor tight­ens rules for mon­ey­mar­ket funds, which in Septem­ber suf­fered the worst out­flows since at least April 2007 amid de­faults at the IL& FS Group. Stric­tures such as di­rect­ing liq­uid funds to mark to mar­ket the value of more bonds, if im­ple­mented, will sus­tain de­mand as overnight plans don’t face in­ter­est rate or credit risks, said Ra­jeev Rad­hakr­ish­nan, head of fixed in­come at SBI Funds Man­age­ment.

The IL&FS stum­bles were a re­minder that money-mar­ket funds, which ac­count for a fourth of Rs23tn of in­dus­try as­sets, are also fraught with risk. Sev­eral fund houses marked down their hold­ings of debt is­sued by IL& FS, with some liq­uid funds los­ing as much as 5% – or half a year’s worth of gains – in a sin­gle day.

“As a fall­out of the IL& FS cri­sis, in­sti­tu­tional in­vestors have been wary about the safety of the port­fo­lios of liq­uid and ul­tra- short du­ra­tion funds,” said Kaus­tubh Be­la­purkar, di­rec­tor man­ager – re­search at Morn­ingstar. Overnight funds, which hold se­cu­ri­ties like the so- called col­lat­er­alised bor­row­ing and lend­ing obli­ga­tion, have re­turned 5.9% in the 12 months, com­pared with 6.8% for liq­uid funds that in­vest in trea­sury bills and com­mer­cial pa­per, ac­cord­ing to Value Re­search In­dia. Still, the stress suf­fered by com­mer­cial pa­per af­ter the IL& FS cri­sis means in­vestors are dis­crim­i­nat­ing on credit qual­ity, said Karthik Srini­vasan, se­nior vice pres­i­dent at ICRA Ltd, a rat­ing agency.

That said, the fu­ture of overnight funds de­pends on how the reg­u­la­tory frame­work for liq­uid funds evolves, debt man­agers say. “Overnight funds will be­come a dis­tinct cat­e­gory” if rules for liq­uid funds are tight­ened, said Kil­lol Pandya, head of fixed in­come at Es­sel Funds Man­age­ment. “Oth­er­wise, they will re­main the flavour of the sea­son.”

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.