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Retail bond issuances dropped 67 per cent in April-December compared with the corresponding period a year ago as investors have shifted to equities, with hopes of higher returns.
Investors’ appetite for equities started increasing after the victory of the Narendra Modi-led Bharatiya Janata Party in the general elections gave stocks a major boost.
According to data from the Securities and Exchange Board of India (Sebi), retail bond issuances between April and December stood at Rs 7,348.27 crore compared with Rs 22,578.73 crore in the year-ago.
“Bond yields are declining and coupon rates are falling. Due to this, bonds have become unattractive for retail investors,” said Arvind Konar, head of fixed income, Almondz Global Securities. “The issuances in retail bonds might continue to be lower even in the fourth quarter. But the private placement route will be tapped. Due to the slowdown in economic growth, the activities of non-banking finance companies (NBFCs), who primarily do retail bond issuances, were lower when compared with last year.”
Bond yields have been falling due to softening inflation numbers, which triggered hopes of a rate cut by the Reserve Bank of India (RBI).
Investors’ appetite for equities started increasing after the victory of the Narendra Modi-led Bharatiya Janata Party in the general elections gave stocks a major boost.
According to data from the Securities and Exchange Board of India (Sebi), retail bond issuances between April and December stood at Rs 7,348.27 crore compared with Rs 22,578.73 crore in the year-ago.
“Bond yields are declining and coupon rates are falling. Due to this, bonds have become unattractive for retail investors,” said Arvind Konar, head of fixed income, Almondz Global Securities. “The issuances in retail bonds might continue to be lower even in the fourth quarter. But the private placement route will be tapped. Due to the slowdown in economic growth, the activities of non-banking finance companies (NBFCs), who primarily do retail bond issuances, were lower when compared with last year.”
Bond yields have been falling due to softening inflation numbers, which triggered hopes of a rate cut by the Reserve Bank of India (RBI).
Consumer Price Index (CPI)-based inflation rose 4.38 per cent year-on-year in November, the slowest pace in data going back to January 2012. “The substantial easing in CPI inflation to 4.4 per cent in November 2014 from 11.2 per cent a year earlier marks a significant improvement in the Indian macroeconomic environment,” RBI had said in the Financial Stability Report released on Monday.
The repo rate, or the rate at which banks borrow from RBI, has remained at eight per cent since the last hike of 25 basis points in the January monetary policy review. In the fifth bi-monthly monetary policy review held earlier this month, governor Raghuram Rajan said a change in the monetary policy stance was likely early next year should improvements in inflation and fiscal health continue. Domestic markets are expecting the RBI to start the rate-cut cycle in the fourth quarter (January-March) of the financial year. This expectation might lead to further softening in bond yields, thus making coupon rates lesser attractive for investors.
Nirakar Pradhan, chief investment officer of Future Generali India Life Insurance, said: “The culture of retail investors investing in bonds is still not prevalent except for high networth investors. Now with returns on these bonds falling, it does not make sense for them to invest. Other avenues of investments are giving better returns.”
The last traded yield on the AAA-rated public sector undertaking corporate bond was 8.52 per cent, while on December 31, 2013, it stood at 9.59 per cent. Similarly, in the five-year paper, the yield was at 8.68 per cent and a year ago it was 9.63 per cent. AAA is the highest rating given by credit rating agencies and it signifies that a firm has an extremely strong capacity to meet its financial commitments.
