Top-rated manufacturing companies continue to shy away from the commercial paper (CP) market, despite the steep 200-basis-point fall in the rates over the last one month, according to investors hungry for these companies' papers. | |
| CP issuances have risen since last one month, but it was mainly due to non-banking finance companies and financial institutions, they said. |
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| "We are right now in surplus and don't require additional funds," said ACC's senior manager-finance S. Krishnamurthy, indicating that good cash management by companies has brought down their requirement of short-term funds. |
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| "There is a slowdown in credit growth and you don't see much demand from companies during the monsoon," said Ritesh Jain, fund manager at Kotak Mahindra Mutual Fund. |
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| According to the Reserve Bank of India's weekly data, banks' loans grew only 24.6 per cent in the fortnight ended June 22, compared with 31.0 per cent a year ago. In the absence of measures from the Reserve Bank of India to sterilise the infusion of rupees through its dollar purchases, the banking system is swamped with cash. |
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| The call money rate is hovering at near-zero level and banks every day try to park their idle cash in reverse repo tenders, failing which they buy gilts and money market instruments. |
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| Bids at the reverse repo tenders have been close to Rs 400-450 billion since last week, indicating the extent of the excess cash in the system. |
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| However, the central bank accepts not more than Rs 3,000 crore because of the limit on daily absorption since March. |
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| Banks' demand for money market instruments pushed the yields on 1 year commercial papers down by 205 basis points in the last one month. |
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| The fall in yields of up to 1-year papers also rubbed off on the bonds in the 2- and 5-year segment. Yields on 2-year bonds have fallen by 50-60 basis points and on 5-year by around 40 basis points since June. |
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| Although manufacturing companies stayed on the sidelines, NBFCs capitalised on the fall in rates, dealers said. |
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| NBFCs have placed CPs worth more than Rs 11 billion since June, compared with nearly Rs 700 crore in May, data compiled by NewsWire18 indicated. Issuances from manufacturing companies may rise, going forward, if the rates remain closer to the current levels, fund managers said. |
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| Ritesh Jain, fund manager, Kotak Mahindra Mutual Fund, expects the rates to remain at the current levels at least till the end of July. |
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| Manufacturing companies such as Redington India, Alkem Laboratories, and Apollo Tyres recently acquired ratings for additional issuances of short-term papers. Manufacturing companies issued CPs worth Rs 3-4 billion in June, compared with Rs 2 billion in May. |
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| "It is a good time for companies to raise funds through CPs. With banks' PLRs around 10 per cent, a CP issuance would be a 2 per cent difference on cost," said ACC's Krishnamurthy. |
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| NBFCs have already increased their borrowings through such issuances and continue to account for a major share of total CPs issued. |
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| The volume is seen rising further if the rates stay soft. |
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| "Volume from manufacturing companies has not risen as per expectations. NBFCs will be more interested in issuing CPs, as they have to meet their ALM (asset-liability management) norms," said a fund manager at a private mutual fund. |
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| The supply would be more than matched by demand from mutual funds, as "funds are sitting on a lot of cash and interest would be across the curve up to one year," said a fund manager at HDFC Mutual Fund. |
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