Credit Policy Spurs Blue-Chip Ncds Above Issue Price

Non-convertible debentures (NCDs) of blue-chip companies are quoting above their issue price for the first time in months, according to market intermediaries.

Non-convertible debentures of Reliance, ITC Hotel, Gujrat Ambuja, Tisco, United Phosphorus, MRPL and Nirma allow comparison between the pre and post-credit policy scenario.

Even in the short-time that has elapsed after the announcement of the credit policy, NCDs which were quoted below par have picked up.

NCDs of all the companies mentioned above were either not quoted at all or else quoted much below the issue price.

However, all of these have crossed their par value in the post-credit policy trading sessions.

Market sources said that this is a direct fallout of the slack season credit policy announced by the Reserve Bank of India.

In the credit policy announced earlier this month, the clause that banks can invest only five per cent of incremental deposits in debentures, bonds and shares, was amended and the cap on banks' investments was waivesd for preference shares, debentures and bonds of private corporate bodies.

Market sources said this is the main reason for the positive activity being noticed in the counters of non-convertible debentures as banks are obviously investing in them.

Brokers welcomed this trend of rising NCD quotes as these debentures were traditionally quoted much below the issue price.

Iinvestors who had bought these NCDs when they were issued could find no way to offload them without incurring heavy losses.

Also, some NCDs were not even traded and lack of liquidity in the market adversely affected investors.

Now, with increased participation of banks in Non-convertible debenturess after relaxation of the five per cent cap, the market liquidity will increase.

A buoyant mood will be created in the capital market as investors will be able to retrieve money that was practically locked up.

Market intermediaries are hoping that the money released as a result of increased liquidity would also flow into the equity and boost market volumes.

However, brokers were of the opinion that only Non- convertible debentures of blue-chip companies will benefit as a result of the credit policy and will show any improvement in the prices at which they are quoted.