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The flare-up in tensions between India and Pakistan following Operation Sindoor may lead to a temporary slowdown in long-term bond issuances, typically 10 and 15-year bonds, in the domestic capital market, as issuers may hesitate to lock in rates for extended periods amid heightened uncertainty, according to market participants.
Despite escalating tensions with Pakistan, the yield on India's benchmark 10-year government bond has remained steady. Yields on 10-year government securities fell by 1 basis point on Wednesday.
The stability is attributed to the Reserve Bank of India's (RBI) proactive liquidity measures, including open market operations (OMOs), which have bolstered market sentiment. Recent geopolitical developments in Kashmir had caused yields to inch upward in the past week, but traders are now adopting a cautious “wait-and-watch” approach.
According to market participants, the market had already factored in the flare up in tensions between the two neighboring countries in the past week.
“Market is cautious about what reactionary measures the government will take. Looking at the uncertainty, long term issuances might get affected as nobody wants to lock in for longer when we don't know what is going to happen," said a dealer at a brokerage firm.
“There will be a dip in long-term issuances, hopefully for a brief period,” said a market participant on the condition of anonymity, adding that issuers who are not in urgent need of long-term funds could hold off on issuing 10 or 15-year bonds for now.
Typically, state-owned entities issue long-term bonds in the domestic capital market. On Wednesday, NTPC raised ₹4,000 crore through 10-year bonds at a 6.84 per cent cut off. However, Exim Bank withdrew its 10-year bond issuance because of higher than expected yields being demanded by investors.
In FY25, domestic companies raised a record amount – around ₹11 trillion – from the domestic capital market by issuing bonds. In FY24, corporates raised a little over ₹10 trillion from the capital market.
April, which is typically a slow month for corporate fundraising, has seen around ₹1 trillion worth of bonds being issued as issuers tapped the market to raise funds at a cheaper rate following successive rate cuts by the RBI.
Another market participant noted that the tensions are unlikely to escalate further and have largely been priced in by the market, making a significant impact on the corporate bond market unlikely at this stage—unless the situation deteriorates.
