Muted earnings growth, sluggish private sector capex, and an overall environment of low demand-high leverage are expected to keep overall corporate debt supply subdued, says India Ratings and Research (Ind-Ra). Spreads on investment-grade bonds are likely to be stable backed by a steady appetite and an overall lower supply. Any spread compression hereon is likely only on the back of a benign global environment, an enhanced risk appetite, improved growth prospects, along with an improvement in the state of corporates' balance sheet.
CP Refinancing: In Ind-Ra's assessment, commercial papers (CPs) worth INR555.5bn are due for redemption over the coming six months with 84% of them arising from the three sectors - financial services, financial institutions, and oil and gas.
Issuance Space Dominated by Top Borrowers: Inter-sector divergence in access to capital market may play out as bond issuances in few sectors such as non-banking financial corporations, banking/term lending, and power (primarily renewables, transmission and UDAY bonds) will outpace the growth in issuances in other corporate sectors such manufacturing, engineering, and cement among others.
Demand to be Driven by Domestic Investors: The appetite for corporate debt will be driven by domestic investors. Given the nature of these investors, bond market development is likely to remain restricted in the AA and above categories. Credit quality issues may keep the outlook challenging for the issuers down the credit curve.
However, the need for higher yields may necessitate some mutual funds to take exposure down the credit curve. Foreign portfolio investors are likely to focus on rate outlook and are unlikely to take a meaningful incremental exposure in corporate bonds. However, provident funds and insurance companies, along with domestic banks and mutual funds, will continue augmenting demand for corporate bonds, offsetting the waning appetite of foreign portfolio investors.
Ind-Ra presents its first edition of Indian Corporate Debt Market Tracker - a publication aimed at providing a complete picture of developments in the domestic primary bond market in terms of sectoral composition, rating mix, and CP issuance trends. The study pertains to the January to April 2016 period, unless otherwise specified. The study has been conducted based on the data obtained from Prime Database and pertains to the private placements for corporate bonds. The actual issuance amount may vary.
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