Credit Market

In December 2022, Acuite Rating and Research Ltd has downgraded credit rating of UGRO Capital to A from A+ driven by weaker than expected earning performance and high high operating cost.

The Government of Uttar Pradesh has given an unconditional & irrevocable guarantee for both the issues. The state will also recognize the bonds as a contingent liability in the State budget until the maturity of bonds.

Driven by high inflation and rate hike, both g-sec and corporate bond yields have soared in past two years which led to capital loss for investors.

Muthoot Microfin Limited (MML) has been rated as A/stable by CRISIL and India Rating. Greater Pacific Capital infused USD 10 million in MML in Oct 2022.

During Q3FY23, SBI’s net interest income rose by 24% on yearly basis as compared that in Q3FY22. Consequently, its net profit soared by Its net interest margin stood at 3.69% during Q3FY23 as compared to 3.4% in Q3FY22.

Govt of Andhra Pradesh has extended unconditional and irrevocable guarantee to bonds issued by APSBCL.

During Q3FY23, its interest income rose by 21%. During that quarter, operating margin stood at 23.31% while net profit margin came in at 15.81%.

Indore municipal corporation is going to issue secured redeemable non-convertible debentures (NCDs) of face value of Rs1000. Each NCD would comprise four separate transferable and redeemable principal parts(STRIPS), with each having a face value of Rs 250.

As of Sep 2022, the market value of its investment is more than Rs. 1400 billion. This helps Bharti Telecom Ltd to have financial flexibility by very low total debt/market value.

During Q3FY23, ICICI Bank's profit after tax grew by 34.2% year-on-year to Rs 83.12 billion while net interest income (NII) increased by 34.6% year-on-year to Rs 164.65 billion.

Manappuram Finance has been rated as AA by CRISIL, and AA- by ICRA. Asirvad Microfinance Ltd has been rate as AA- with stable outlook by CRISIL for its long-term borrowing plan while short term rating as A1+.

Driven by higher inflation, rising policy rates by central banks have caused government bond and corporates paper yield to rise during 2022.

Established in 1986, Power Finance Corporation is a financial institution in India focused on the power sector. Registered with the RBI as a NBFC and classified as an Infrastructure Finance Company by the RBI and plays a strategic role in government’s initiatives for the overall development of the power sector in India.

As a standalone basis, MFL’s net worth stood stable at Rs 33 billion as of 31st March 2022 from Rs 32 billion as of 31st March 2021. Capital Adequacy stood at 19.42% as of 31st March 2022 as compared to 16.85% as of 31st March 2021.

The company has been able to increase its operational efficiency in the past few fiscal years. During FY22, its interest income rose by 20% while net profit increased by 22% on yearly basis. During H1FY23, interest income rose by 44% on yearly basis

Muthoot Finance has established its leadership position in the gold financing segment driven by the long and established track record of 81 years of its promoter family.

The ongoing issue of Bharat Bond ETF 2033 offers an assumed yield of 7.5% with modified duration of 6.67years.

DMI Finance Pvt Ltd is rated AA- by both ICRA and CARE rating agencies.

After merger of Shriram Group, Piramal, who holds 20% in SCL and 9.96% in SCUF, will hold 8.37% in Shriram Finance Limited. The merged entity is likely to have assets under management (AUM) of over Rs 1.78 trillion, more than 20 million consumers, and a distribution network of around 3,500.

The current issue of NCDs by Credit Access Grameen Ltd offers yield that ranges from 9.83% to 10.46% with 2 to 5 years maturity.

Asset quality of Bajaj Finance has witnessed significant improvement in recent past. Its gross NPA improved to 1.17% as of 30th Sep 22 from 2.45% as of 30th Sep 21.

The Hinduja group has stake of 99.35% in HLF as on December 31, 2021, with Ashok Leyland being the primary shareholder with around 68.81% stake. Consequently, HFL receives timely support in the form of capitalization, managerial and strategic from its promoters. Being promoter, portfolio vehicle of Ashok Leyland constituted around 35% of HLF’s portfolio as on December 31, 2020.

Currently Navi Technologies Pvt Ltd (promoted by Mr Sachin Bansal) is the parent company of Navi Finserve Private Limited. This gives an advantage in terms of reputation and brand name to the company.

The company’s gross NPA improved to 1.40% as of Q1FY23 from 3% as of Q4FY22. In the same line, net NPA improved to 1.30% from 2.70% during the above-mentioned period.

As of 31st March 2022, Muthoot Finance Limited holds 60.69% of shareholding followed by Affirma Capital (Arum Holdings Limited) holding of 14.51 %.

L&T Finance 2022 & 2023 maturity bonds are the most traded bonds in last 1yr.

SBI perps have been the best performing bonds in a rate hike cycle given that the spreads over g-secs have narrowed sharply by over 150bps. SBI perps continue to offer stability but sharp outperformance may not continue.

In current NCD issue, Ugro Capital offers coupon rate 10.15%, 10.35%, 10.50% with YTM 10.52%, 10.74%, 11.01% respectively.

During Q1FY23, the company’s net interest income rose by 34% on yearly basis while net profit stood at Rs 2.23 billion during the same quarter as compared to loss of Rs 15.29 billion in Q1FY22.

In June 2022, the rating agency CARE has upgraded its rating to AA-(stable) from A(stable). The company has received Rs 0.75 billion and Rs 2.55 billion as equity infusion in HFY22 and FY22 respectively from its promoters.

The company’s capitalization profile remains robust as characterized by its capital adequacy stood at 19.15% as of 30th June 2022. Its net worth rose to Rs 123 billion as of 30th June 2022 from Rs 117 billion as of 31st March 2022.

STFCL’s asset quality has been at elevated level in recent years. As of 30th June 2022, its gross NPA stood at 7% as compared to 7.07% as of 31st March 2022 while net NPA came in at 3.52% as compared to 3.67% as of 31st March 2022.

During Q1FY23, Bajaj Finance registered 47% annual growth in net interest income and 179% growth in net profit. During FY22, its NII grew by 26% while net profit increased by 60.52% on yearly basis.

TCCL’s portfolio primarily consists of large project finance investments in renewable energy sectors like wind and solar power generation. Therefore, the funds raised through green bonds can be appropriately utilised to confirm with the green bond principles.

After merger of Shriram Group, Piramal, who holds 20% in SCL and 9.96% in SCUF, will hold 8.37% in Shriram Finance Limited. The merged entity is likely to have assets under management (AUM) of over Rs 1.6 trillion, more than 20 million consumers, and a distribution network of around 3,650.

In the current economic scenario of global rate hikes, high inflation have caused INR to trade at lowest level at Rs 79.50. The fall in rupee value has raised currency risk of dollar bonds. Consequently, yield of USD bonds has moved up.

Muthoot Fincorp Limited offers 10.26% on monthly basis with 6 years maturity through private placement. The bond is unlisted and unsecured in nature.

Non-excercise of call option by Indiabull Housing Finance creates decline bond price and poses risk to such perpetual papers in bond market.

API Holding Limited raiased variable coupon bond with maturity 4 years while HPCL raised 10year bond with 7.81%.

Andhra Pradesh State Beverages Corporation Ltd raised bonds through private placement with maturity 1 to 10 years having coupon rate 9.62%.

Bajaj Finance raised 5 year bonds through at a coupon rate of 7.70% through private placement.

Last week, Fullerton India Credit Company Ltd raised bonds at 7.8% having 3 year maturity while HDFC raised at 7.4% having 3 years maturity through privat placement.

Through private placement, Tata Motor Finance Solution ltd offers 9.30% on perpetual papers. These bonds are unlisted in nature.

During FY22, the company's interest income rose by 17% y-o-y. However, owing to higher provisions for financial instruments during Q4FY22, net profit declined by 47% on yearly basis during FY22.

During Q4FY22, the company’s net interest income rose by 21% yearly while it came down by 6% quarterly. However, as per RBI guidelines, it has to make additional provision for expected credit loss during Q4FY21 which stood at Rs 157.4 million.

As of 31st March 2022, gross NPA of TVS Credit improved to 3.67% from 4.96% as of 31st March 2021. Consequently, net NPA came down to 1.85% from 2.29% during the mentioned period.

Navi Technologies Pvt Ltd (promoted by Mr Sachin Bansal) is the parent company of Navi Finserve Private Limited. This gives an advantage in terms of reputation and brand name to the company.

In upcoming debt issue, Navi Finserve Limited offers effective yield between 9.57% and 9.80% having maturity 18 months and 27 months.

Post RBI repo rate hike, short end g-sec curve has steepened as compared to longer end g-secs.

NTPC has raised bonds worth Rs 15000 million through private placement with maturity 2 years having coupon rate 5.78%.

KNR Tirumal Infra Private Limited issued bonds of Rs 5210 millon through private placement.

U GRO Capital offers coupon rate of 10% to 10.4% with maturity 18 to 36 months in current public debt issue.

UPPCL has raised bonds through private placement with coupon rate 9.7% having maturity 3 to 10 years

LIC Housing Finance has issued two bonds having maturity of 3 and 10 years through private placement on 23rd March.

As per agreement, NHAI extends its full support to DMEDL for its debt repayment. Being subsidiary, DMEDL receives full support in terms of technical, managerial and strategic support from NHAI on a continuous basis.

Vivriti Capital Private Limited on standalone basis reported Capital Adequacy Ratio (CAR) of 40.31% as on March 31, 2021, with Tier I CAR of 39.71%. The company’s overall gearing at consolidated level was moderate at 1.82 times as on March 31, 2021

In the current scenario of higher government borrowing, crowding out of private borrowing is likely to occur in coming days due to rising interest rates as opportunity cost of borrowing money rises. Therefore, it will lead to higher corporate bond yield in near future.

Shriram Transport Finance Ltd is one of the largest asset financing NBFCs. Its assets under management (AUM) rose by 8.41% to as of Q3FY22 on yearly basis.

UPPCL has been consistently receiving subsidy support from Govt of UP for the past 5 years. UP Govt provided a subsidy of Rs. 74.40 billion in FY16 to compensate losses. Further, during FY17 and FY18, UPPCL got a subsidy of Rs. 44.23 billion and Rs. 44.04 billion respectively.

SDLs are offering yield at par with similar maturity corporate papers. Therefore, considering safety, SDLs are a better opportunity for long-term investment in current economic scenario.

Navi Technologies Pvt Ltd (promoted by Mr Sachin Bansal) is the parent company of Navi Finserve Private Limited. This gives an advantage in terms of reputation and brand name to the company.

The newly launched Bharat Bond ETF-2032 yield stood at 6.99% with a spread of 54 bps as of 31st December 2021.

AAA rated 7.02% Bajaj Finance 2031 yield went up by 30 bps since August 2021 while spread moved up to 60 bps from 52 bps during the same period.

During Q2FY22, Bajaj Finance registered 18.85% growth in net interest income on a quarterly basis while 28.18% on a yearly basis. In the same line, its net profit rose by 8.42% on quarterly basis while 53.47% on a yearly basis.

Factors like poor earnings and state bifurcation have led to default on obligation. It can be seen from the example of Andhra Pradesh Power Finance Corporation Ltd & Transmission Corporation of Andhra Pradesh Ltd. After bifurcation of Andhra Pradesh into two states, there was dispute between Andhra Pradesh and Telangana regarding distribution of assets and liabilities. Consequently, it led to default on their obligations towards these companies.

MAFIL has a strong retail franchise, especially in South India, supported by its long-standing presence in the gold loan business. The promoter has an established track record of operating in the gold loan segment and is actively engaged in the company’s operations.

On 17th Vedanta Ltd announced that its board of directors have constituted a subcommittee to evaluate a spinoff of its various commodity categories such as aluminium, iron and steel, and oil and gas businesses into separate listed companies. The objective of de-merger is to bring better transparency in the deployment of the cash surpluses from each business towards reinvestment or towards dividends and shareholder’s value creation.

During Q2FY22, the Shriram City Union Finance has witnessed a net interest income growth of 5% quarterly basis while 18% on annual basis. During the same quarter, net profit rose by 35% quarterly while 9.73% growth annually.

Despite poor financial performance of UPPCL, its bonds have witnessed good demand from investors. It can be seen from above table that 8.75% UPPCL 2026 bond yield has lost 29 bps since 14th October. The company has the privilege of being guaranteed by Govt of UP and some special structure embedded with the help of RBI which has created a credibility in the market.

Bharat Bond ETF-2030 yield has moved up by 17 bps to 6.81% on 22nd October from 6.64% on 9th April 2021. However, spread came down to 36 bps from 53 bps as benchmark g-sec yield gained 23 bps during the same period.

Svatantra Microfin Private Limited (SMPL) has been rated as A with stable outlook wand A+ with stable outlook by CRISIL.

Among the issuers of debt public issues in last three fiscal years, Srei Infrastructure Finance has defaulted while credit rating of India Bull Commercial Credit Ltd, ECL Finance, Aadhar Housing Finance has been downgraded.

As per announcement of Union Government, Allahabad Bank merged with Indian Bank in Feb 2021 to form 7th largest PSU bank.

IIFL Finance public debt issue offers a reasonable rate of interest but comes with low liquidity, business risk, and economic risk. Investors should weigh whether the risk is commensurate with the returns for investment considerations.

Microfinance institutions in India play a vital role in providing credit to people with low income-generating capacity. The basic features of microfinance loans are that they are of small amounts, with short tenures, extended without collateral and the frequency of loan repayments is greater than that for traditional commercial loans. These loans are primarily provided for income-generating activities. In addition, they are also provided for consumption, housing, and other purposes.

In the current covid pandemic, the fiscal position of states has been deteriorated due to the announcement of fiscal packages and lower revenue collection during the economic lockdown. Consequently, it has had an adverse impact on state-guaranteed bonds. In addition to it, weakening profitability and debt burden of state-guaranteed companies have caused their bond yields to remain at elevated levels. Let’s analyze some issuers below.

The rise in NPA level, weak profitability lead to a spike in the yield level of bonds.

UPPCL received a loan of Rs 49 billion from Power Finance Corporation and REC. The amount raised was used to partially clear the dues of generating companies. As on July 31, 2021, UPPCL’s pending dues to generating companies stood at Rs 244.61 billion.

Gold loan NBFCs have seen higher NPAs and weak loan growth in the 1st quarter of this financial year, with gold prices down and covid hit economy borrowers unable to pay interest and principal on their loans. However, given that the NBFCs NPAs are still manageable with high capital adequacy ratio, bonds are not impacted.

The commodity boom that has taken up prices of commodities sharply higher over the last one year has been highly positive for debt ridden companies like Vedanta, who at one point of time was struggling to service debt and bond yields had shot up. The strong 1st quarter FY21 numbers is seen in the fall in bond yields of Vedanta. The company will have to use boom time to reduce debt to manageable levels to comfort bondholders.

Tax-free bonds have been stuck in 3.6% to 4.5% range across maturities and issuers from 1 year to 12 years. Even the longer maturity tax free bonds have hardly reacted to rise in gsec yields that have seen the 10 years and above gsec yields rise 40bps to 60 bps across maturities on inflation fears.

5-year Bharat Bond ETF yield peaked at 6.05% during mid-March from 5.67% as on1st Feb 2021. After that it came down to 5.48% during April with a negative spread of 18 bps. As of 15th Jul 2021, 5-year Bharat Bond PSU ETF yield stood at 5.74% with a spread of 14 bps over the benchmark 5 year government bond.

Piramal Capital & Housing Finance Ltd (PCHFL) is a housing finance company formed in February 2017. The company is a wholly-owned subsidiary of Piramal Finance Limited and is the flagship entity of the Piramal group’s financial services business. Piramal Capital & Housing Finance Ltd has been rated as AA by both CARE & ICRA.

Hero FinCorp Ltd (HFCL) is a NBFC, which is an associate company of Hero MotoCorp Ltd. The company’s area of operation includes consumer finance and commercial lending. Its consumer finance segment engages in financing Hero MotoCorp two-wheelers and providing loans against property. In the commercial lending segment, it finances Indian corporates including working capital loans, machine loans among others.

Structured Payment mechanism- Bonds Series III & IV -FY2016-17-Under the mechanism, UPPCL is transferring funds proportionately to the UPPCL bonds servicing account to ensure the accumulation of required funds by T-15 days. The UPPCL bond servicing account is regularly monitored by the debenture trustee. In case if shortfall, the debenture trustee can contact UP state to fund the shortfall by T-10 days. If the state fails to provide the funds, the trustee can contact RBI on T-9th day to directly debit the state's account and make good the shortfall in the next 8 days that is on or before T-1 day to ensure sufficient funds are available one day prior to the due date. Government of UP has given irrevocable written instructions to RBI for the above-mentioned structure.

RRVPNL is 100% owned by the GoR and gets timely support from the state government to compensate its capital expenditure and funding requirements. It can be noted that GoR has infused Rs.2.50 billion of equity in this company as of FY20.

Muthoot Fincorp Ltd MLD covered bond is Principal protected in case of call exercised by issuer. It will fetch XIRR of 8.75% if the price of 5.79% G-Sec 2030 >25% of Initial Level else principal repayment.

Bharat bond ETF yield is down from peaks seen this calendar year on RBI holding the 10 year gsec yield at 6% levels. Going forward, inflation and heavy bond supply will keep pressuring the Bharat bond ETF yields to move up.

Piramal Capital & Housing Finance Ltd (PCHFL) is a housing finance company formed in February 2017. The company is a wholly owned subsidiary of Piramal Finance Limited and is the flagship entity of the Piramal group’s financial services business.

Metal companies are benefitting due to a surge in commodity prices in the last 1 year. Strong earnings with a better than business environment have resulted in a fall in credit risk for commodity firms.

During FY22, PSU bond spreads have experienced an uptrend. Owing to RBI’s government bond-buying through G-SAP program and Operation Twist, g-sec yields have fallen by around 20bps to 30bps while corporate bond yields have not fallen as much.

Tata Cleantech Capital Limited (TCCL) was formed in 2011 as a joint venture between Tata Capital Limited (TCL) and International Finance Corporation (IFC). Tata Capital owns 80.5% share while 19.5% is owned by IFC. TCCL is a Systemically Important Non-Deposit Accepting Non-Banking Financial Company (SI-ND-NBFC) registered with the Reserve Bank of India and classified as an Infrastructure Finance Company (“NBFC-IFC”). TCCL offers finance and advisory services for projects in renewable energy, energy efficiency, waste management, water management and other infrastructure projects which makes a robust presence in ESG sector.

Upcoming India Grid Trust NCD issuance of secured, Rated, Listed, Redeemable, Non-Convertible Debt Securities offering coupon rate 6.75% - 8.20% p.a with maturity 3 to 10 years.

Meghalaya Energy Corporation Ltd (MeECL), an undertaking of the Government of Meghalaya, was formed after the corporatisation of the erstwhile Meghalaya State Electricity Board (MeSEB), with an objective for coordinated development of the generation, distribution and transmission of electricity in the state of Meghalaya.

Infrastructure investment trusts (InvITs) are the same as mutual funds, which allows investors to invest small amounts of money in Infrastructure projects. InvIT is a mechanism that enables developers of infrastructure assets to monetise their assets by pooling multiple projects under a single entity. The primary objective of InvITs is to promote the infrastructure sector in India by encouraging more individuals to invest in the sector and can be modified according to a given situation.

In the latest circular issued by SEBI on perpetual bonds with respect to its exposure in mutual funds, perpetual bond yields have risen sharply by 45bps to 120bps since 12th March 2021. The uncertainty on valuation has hit liquidity in the bonds leading to rising yields.

REIT is an investment trust that owns, manages, and operates income-producing real estate assets. It allows individual investors to make investments in this platform and earn income in the form of rental yields and appreciation in capital values of the property.

Check out the bonds that are trading in the 8% to 9% range and bonds that are being bid and offered in the 8% to 9% range in INRBonds Marketwatch.

Bonds of various maturities are trading in the 7% to 8% yield range. Higher credit quality bonds have longer maturities while lower credit quality bonds have shorter maturities. Reading time 3 min

SEBI circular on perps has created a tremor in bond markets. Investors are at the receiving end on the fact that Finmin issued a directive to SEBI. Check out INRBonds risk rating on perpetual bonds.

Borrowing costs for PSUs as well as private sector issuers have risen in the last 3 months, as high government borrowing is crowding out credit markets. Reading time-3 mins

State government-guaranteed bonds are issued by state-backed companies and are embedded with unconditional and irrevocable guarantee by state governments, which acts as a principal debtor. Owing to guarantee by respective state governments, their bond yields are impacted by state fiscal positions. In the current scenario of Covid-19 crisis, state guaranteed bonds are exposed to risk driven by the widening fiscal deficit of states. Therefore, yield of state guaranteed bonds are likely to move up as SDL yields move up. State government-guaranteed bonds are issued by state-backed companies and are embedded with an unconditional and irrevocable guarantee by state governments, which acts as a principal debtor. Owing to guarantee by respective state governments, their bond yields are impacted by state fiscal positions.

PSU tax-free bonds of IRFC, PFC, and others have hardly seen any yield movement upwards even as the taxable bond yields of the same issuers have risen by 40bps to 60 bps over the last 2 months. Bond yields have risen in the market on worries of inflation and government borrowing and it is a matter of time before tax-free bonds see a spike in yields.

India Bull Housing Finance results show stress in its business even as LIC Housing and HDFC, the benchmark lenders, have shown reasonable performance under the current environment. The bond market is treating India Bulls Housing as a potential downgrade candidate, even from its current AA rating.

Union Government has announced several tax incentives for housing and the real sector to boost growth and affordable housing in Union Budget 2021-22.

Bharat Bond ETF yields and spreads are likely to witness an uptrend in coming days as fiscal deficit for current fiscal year jumped to 9.5% of GDP while it has been pegged at 6.8% for next fiscal year driven by higher borrowing. Consequently, it will lead to capital erosion with fall in Net Asset Value.

The HNI investor community has driven down yields of bonds that were trading at higher yields and spreads. The low yields in government bonds, PSU bonds and other highly rated bonds have driven the HNIs to the high yield space. While yields and spreads of bonds of Shriram Transport, UPPCL, Indusind Bank Perpetuals have declined, a lot may issuers are tapping the HNI market through structures such as MLDs.

Tax free bond yields have come off to ultra-low levels with short yield yields trading below repo rate of 4% and long end yields just 40bps to 50bps above repo rate. At these levels of yields, investors, predominantly the very high net worth investors, are shunning the bonds and bond yields have started to rise.

PFC will open its public issue of secured, redeemable Non-Convertible Debentures (NCD) on January 15, 2021. The NCDs are of the face value of Rs 1,000 each. The company in a statement said the base issue size is Rs 5 billion with an option to retain oversubscription of up to Rs 45 billion, aggregating up to Rs 50 billion.

Corporate bonds trading at over 8% offer spreads anywhere between 200bps to 500bps depending on maturity and yield. At these spreads, the bonds indicate higher credit risk but do not indicate a deterioration in credit hereon, which may be wrong. However, they do indicate a gsec yield curve shift up as, current levels of yields below 5% at the short end look unsustainable given inflation, deficits and asset price bubbles.

Large borrowers, Vedanta and SREI infra have been facing significant stress on their debt indicating that business conditions of many borrowers have deteriorated despite the fiscal and monetary pump-priming due to covid. Credit markets have seen easing of credit risk post the liquidity infusion by RBI but there are many large borrowers that are still facing high stress. Bond holders of stressed companies will face default issues and this could lower credit risk appetite.

An analysis of bonds that trade in the 7% to 8% range reveal that most of the bonds have longer maturity of 7 years and above and many of them are perpetual bonds that carry their own risk. Once interest rates starts to rise in the economy, such bonds will see steeper price fall.

CPI inflation for November 2020 was at 6.93% and with RBI repo rate at 4%, government bonds and corporate bonds of short to medium maturity are trading at levels of 3.25% to 6%. Government bonds of over 15 years and SDLs of 10 years and above maturity are trading in the range of 6.25% to 7%. Corporate bonds of 10 years and above maturity are at levels of 6.5% to 7%.

State government-guaranteed bonds are mostly issued by state-owned entities that are loss-making and are unable to service debt on their own. Power distributors suffer from selling power cheaper than the cost of buying or generating power and the difference is borne by the state. States do not have funds to pay for the losses that keep accumulating and banks stop giving loans as dues mount. Hence bonds issued by such entities are subject to 2 risks, 1. states not paying the entities for losses and 2. states not having discipline to service the debt.

FIIs have pumped in around USD 15 billion into India equities as of fiscal 2020-21 year to date but have sold debt worth around 5 billion. The FII trade signifies that government spending and ultra loose monetary policy will lead to high inflation that will drive up asset prices.

RBI will keep interest rates unchanged in its policy review this week, the repo rate at 4% is at record lows and with banks having huge surplus liquidity, deposits rates are below 4% for many banks. Investors in bank deposits are getting hardly any returns post-tax.

Frozen credit markets will get a respite from one big risk off the table, political risk.

Credit markets are virtually frozen for all except a few top of the line borrowers.

Yes Bank eating downgrades will hit bond investors as they have to mark down the bond prices given higher spreads for the lower-rated bonds.

DHFL bonds with maturities ranging from 6 months to 2 years are trading at levels of over 14%.

Essel Group Companies have started to default on their debt obligations, as they do not have the funds to repay their borrrowings.

India Bulls Housing Finance (IBHF) has seen its equity valuations drop and credit spreads on its bonds rise post the IL&FS default in September 2018.

Its been almost one year since we launched Search for Yields (SFY), India’s only High Yield Credit Market Newsletter.

The sharp rise in credit spreads of Yes Bank and Shriram Transport and relatively lower rise in spreads of IndusInd Bank bonds suggest that markets are wary of these credits.

Mahindra Financial Services and Shriram Transport are issuing bonds from 3 years and above maturity to 10 years maturity with just around 30bps to 35bps differential between the 3 and 10 year bonds.

The credit spread outlook for AAA-PSU bonds is positive as compared to AAA-NBFC & AAA-HFC bonds that are still showing negative outlook. Lower rated credits are in severe stress, which could increase further.

The US Treasury yield curve was last inverted in 2007, just before the great 2008 credit crisis and the recent inversion of the curve has spooked markets. More importantly, the Risk Off nature of markets on the UST curve inversion can add to the Credit Stress in India, where there is a Credit freeze for most borrowers and a weak business outlook is hurting more corporate balance sheets.

Take for example a company where its bonds are trading at levels of 18% and the stock price has crashed.

High debt levels of four big groups carries implications for the credit markets, in a slowing economy.

Credit risk funds faced the brunt of the credit defaults that hit the system in 2018 and were among the worst performers in 2018.

The corporate bond market in India has constantly come under the government’s and regulators glare for the lack of depth.

Credit spreads of Indian Steel Sector Issuers could rise if the current downcycle in the sector continues.

Srei Infrastructure Finance Ltd raised funds through a public debt issue in May 2019, when it was rated AA+. The rating since then has been downgraded to A+ with a negative outlook and investors who had invested in the debt issue are facing the implications of the downgrade, which are rise in spreads and lack of liquidity.

RBI December 2018 policy outcome in good for credits but in the longer term, as the credit market is still nervous on the fall out of IL&FS default and Yes Bank issues.

Altico from being a well-capitalized and low leveraged NBFC as of March 2019 has become a defaulter in just 6 months raising concerns in the credit markets on many fronts.

State government guaranteed bonds are supposed to carry the risk of the State but while SDLs are seen as almost risk free, guaranteed bonds carry higher risk, whith bonds of such entities defaulting across periods of time due to various issues. Normally the underlying issuer will not be able to service debt on its own due to the subsidies given by the state governments.

Credits have not really participated in the government bond rally that saw the 10 year benchmark bond yield falling by over 60bps over the last few months.

The recent issue in PMC Bank and the real estate sector hurting the banking system will keep markets extremely credit risk averse.

The depositor is a frightened depositor right now with multiple scams hitting banks. The latest move by the RBI to block the LVB-IBHF merger adds to the fright.

It’s been just over one year since the IL&FS default and sentiments in the credit markets have turned worse rather than turning better as hoped by markets.

The debt overhang of Vodafone Idea in the face of erosion of market value will place more stress on credit markets that are already under severe pressure.

The rise in debt levels of Piramal Enterprises and its exposure to the real estate market is worrying bond markets. Bonds of the company have turned illiquid and spreads are quoting at wide levels.

INRBONDS proprietary Credit Spread Score System shows that credit stress has eased slightly in the month of November 2019. The score is positive 0.03 in November 2019 against negative 0.42 in October 2019.

The failure to pay back loans to Sterling & Wilson (after offloading stake through OFS with the promise to repay the debt from the OFS), casts a huge shadow on the sustainability of the high debt levels of the Shapoorji Pallonji group.

Inox Wind is India’s leading wind energy solutions provider. Inox Wind is a fully integrated player in the wind energy market with three state-of-the-art manufacturing plants in Gujarat, Himachal Pradesh, and Madhya Pradesh.

India’s GDP growth for the 2nd quarter of fiscal 2019-20 is expected at below 4.5%, against 5% growth seen last quarter and well below government forecasts of closer to 7%.

The system is flushed with liquidity from government spending, RBI fx purchases and excess bank deposits that is being kept with the RBI.

Yes Bank’s failure to raise capital this month has caused the share price to fall sharply by 33% from highs seen in the last one month, raising fears of the Bank’s solvency.

AAA to default in just a matter of months, can a company mess up in a few months or has the mess accumulated over ages? In the case of IL&FS, the mess has definitely accumulated over ages as per the latest revelations of the probe by the government.

The IL&FS default and market panic on DHFL are causing a deep stress on credit markets.

In the period April-Dec 2019, 25 public debt issues were floated with a total public debt issuance size of Rs 111.95 billion

The debt default by IL&FS cannot be ringfenced with the lenders taking the hit, as in the case of banks bad loans.

IL&FS that was rated AAA a few months ago was downgraded to junk recently, hitting MFs that hold the securities.

Green Debt Securities, also known as Green bonds, are debt instruments used to finance green projects that deliver environmental benefits.

From 15th May to 30th August, a total of 55 bond issuers received credit rating upgrades out of which 36 issuers were from the financial sector.

In 2015, the green bond market in India started with the issuance size of $100 million to $200 million.

NBFCs have emerged as an important alternate source of credit in the Indian economy.

In theory , debt is deemed safer than equity as debt investors get preference over equity investors when a company is liquidated.

The INR fell to all time lows on the back of Turkish Lira collapse.

Credits are tricky, one wrong investment means a capital loss that cannot be recovered.

The falling INR has impacted credit markets the most.

We have analysed the performance of NBFCs over the last one year; dividlng them into various categories such as Diversified Business, Auto Loans, Housing Finance, Gold Loan, Infrastructure Finance and Microfinance.

Banks do not lend long term unsecured to corporate borrowers. However, despite the security of an asset, banks in India, especially government owned banks, are deep in the red due to bad loans.

The financial performance of NBFC’s have far outpaced banks in terms of growth, NIMs and NPAs over the last few years.

The single biggest issue plaguing Indian cities is the lack of infrastructure backbone that is unable to support new constructions, rise in number of vehicles and increase in population.

The last few months have seen a sell off in mid and small cap stocks, with many of them falling by 30% to 40%.

The Indian debt market is evolving rapidly and this evolution is enabling small and mid size borrowers to access the corporate bond market.

Slack in bank lending is being taken up by corporate bond market and CP market, which is highly positive for the system.

Fixed Income Investors have a much wider choice of investments at present than what they had even a few years ago.

Bond buyers who do not have access to credit research or who do not understand credit and interest rate markets are taking on much more risk than what they believe they are taking.

LAS has been a popular form of funding for promoters and was well accepted in the marketplace by lenders and investors.

The factors that drive the high yield credit market are turning negative.

The extreme nervousness is seen going out of credit markets with marginal falls in credit yields at the short end of the curve.

NBFC credits are still seeing high spreads persist in the market as uncertainty on their future liquidity persists.

High yield credits are esoteric in nature and carries high liquidity risk apart from credit risk and interest rate risk.

NBFC CP and Bond spreads have risen sharply since the IL&FS default and markets are still risk averse on the sector.

The 2008 financial crisis saw a complete freeze in credit markets in India, hitting Mutual Funds and NBFCs hard as they struggled to meet their liquidity requirements.

RBI hiked rates for the first time in over 4 years, hiking the repo rate by 25bps in its policy review on the 6th of June 2018.

A market where there is no public information available but is growing rapidly in size is a market with huge price inefficiencies.

Expectations of Rate Cuts and RBI removing floor on overnight rates drove down yields on PSU bonds.

For the week ended 6th December, credit spreads were down. Short end PSU-G-sec spreads moved down by 6-40 bps and 10 years maturity spreads moved down by 4 bps, the spreads were at 35-84 bps across maturities.

India Bulls Housing Finance is a classic example of bond markets differing from rating agencies on its credit risk. Spreads are way higher than an average AA- rated bond of a housing finance company. The company has been buying back bonds from the market but still the lack of institutional liquidity is keeping the spreads high.

Retail investors have shown preference for higher yielding bonds of CV lenders such as Shriram Transport Finance and Cholamandalm Investment (perpetual bonds with 3 year yield to call). Institutional investors are largely in M&M Finance and Sundaram Finance. The trading frequency and bond yields and spreads of CV lenders helps us understand investor preference.

USD weakness on Joe Biden win will drive in capital flows into higher yielding INR assets. Corporate bonds in the 1 to 5 year maturity category will see good demand from FIIs.

Corporate bond yields and spreads over government bonds have dropped substantially since April 2020. RBI lowering interest rates to record lows and guiding for low rates for the rest of this fiscal year has lent stability to corporate bond yields at lower levels in the 1 to 3-year maturity segment. However, over 3 years, the risk of interest rates rising hangs on the market and makes investments risky.

In March-April 2020, RBI provided banks TLTRO liquidity of Rs 1.128 trillion, Banks were required to acquire up to 50% of their incremental holdings of eligible instruments from primary market issuances and the remaining 50% from the secondary market, including from mutual funds and NBFCs.

Corporate bond issuance for 2-3 year maturity sharply increased to 75% as a percentage of the total issuance of around Rs 680 in April 2020.

FIIs exposure to corporate bonds is steadily declining. As on 23rd October, FIIs exposure to corporate bonds stood at Rs 1416.82 billion against total limit of Rs 5414.88 billion.

As per RBI data, from March-end 2020 to August 2020 period, banks investment in bonds issued by Private Corporate Sector rose 35.26% to Rs 3.06 trillion against Rs 2.26 trillion in March 2020.

This month's market risk sentiment has improved marginally but still in the negative territory, the score is at negative 0.24 from negative 0.29 last month.

In the October 2020 RBI Policy, the central bank maintained status quo on rates and announced liquidity measures such as on tap TLTRO with tenors of up to three years for a total amount of up to Rs 1 trillion at a floating rate linked to the repo rate

INRBonds has been covering perpetual bonds since the time it has been launched and highlighting the risks it brings to investors. Perpetual bonds spread movement shows that the spread of lower-rated banks such as Punjab & Sind Bank and The South Indian Bank has widened while the spread of big private sector banks and public sector banks has contracted from the levels seen in March 2020 but witnessed an uptick in the spreads during the month of September 2020.

During the week, BPCL 5-year bond was trading at 6.08%, at spreads of 71 bps. Adani Ports and SEZ Ltd 6-year bond was trading at 7.50%, at spreads of 190 bps, Oriental Insurance Company Ltd 9 year bond was trading at 7.90%, at spreads of 160 bps

In the last one week, AAA housing finance companies spreads rose by 2-13 bps across maturities. AAA 5-year spreads

As on 18th September FIIs exposure to Corporate bonds stood at Rs 1464.79 billion against total limit of Rs 4292.44 billion. In the last one month, FIIs exposure to corporate bonds reduced by Rs 52.45 billion

AAA PSU 5-year spreads for NABARD and similar bonds are at 14 bps, which are too tight and most likely to rise as interest rates move

RBI, seeing yields shoot up on inflation and supply worries, came out with strong action on making sure yields are protected by announcing operation twist and increasing HTM limit for banks.

Credit Spreads Snapshot For The Week • 3 and 12 Months CD yields rose by 5-15 bps. • 3 and 12 Months NBFC CP yields fell by 8-15 bps. • Morgan Stanley India Primary Dealer Pvt Ltd issued Rs 6.3 billion, 4-year bond at 5.33%, 80 bps spreads • Bajaj Finance Ltd , AAA, issued Rs 100 million, 10-year bond at 7.25%, 219 spreads • FII debt utilization status stood at 31.78% of total limits. FIIs investment in bonds came down by Rs 45.51 billion

Credit Spreads Snapshot For The Week • 3 and 12 Months CDF yields fell by 5-9 bps. • 3 and 12 Months NBFC CP yields fell by 10-18 bps. • Magma Housing Finance Ltd, AA-, issued Rs 1.4 billion, 1.5-year bond at 8.48%, 436 bps spreads • SBI Cards and Payments Services Ltd, AAA, issued Rs 5 billion, 3-year bond at 5.75%, 140 spreads • FII debt utilization status stood at 32.32% of total limits. FIIs investment in bonds came down by Rs 9.17 billion

India’s higher retail inflation at 6.93% in July 2020 led to rise in government bond yields last week. Credit spreads fell as corporate bond yields were steady at the short end.

Private placement of Corporate Bonds for the period April-July 2020 was at Rs 2.69 trillion against Rs 2.08 trillion in April-July 2019, rising by 29% in a year,as the Covid-19 illiquidity premia reduced under the impact of Operation Twist and TLTRO 1.0 in the last four months and lower borrowing costs have led to record primary issuance of corporate bonds.

RBI is scheduled to release its monetary policy on 6th August where we expect no change in policy rates. Read our note on policy expectations. Credit spreads were stable in pre-policy week.RBI moratorium decision will weigh on Banks, NBFCs and HFCs bond spreads movement.

As per Financial Stability Report pulished in July 2020 by RBI, the gross and net non-performing asset (GNPA and NNPA) ratios of all SCBs which was at 9.3% and 3.7% at the end of H1FY20 have come down to 8.5% and 3.0% in March 2020.

In the first fortnight of June 2020, Commercial Paper issuance fell 63.6% by Rs 20.73 billion to Rs 36.32 billion against Rs 57.05 billion in the second fortnight of May 2020.

The loss of economic activity has hurt borrowers across segments and this will reflect most on NBFCs given their concentrated risk and largely unsecured nature of credit.

In the first fortnight of June 2020, Commercial Paper issuance rose 32% by Rs 686.92 billion against Rs 521.56 billion in the second fortnight of May 2020. Higher surplus system liquidity and lower benchmark interest rates pulled down CP rates. In the last one month, A1+ NBFC CP yields came down by 130 bps to 4.6%.

Rating agencies have sounded out warning on liquidity and its impact on the financial strength of toll road projects.

In June 2020, the Indian bond market has witnessed risk aversion coming down, as AAA PSU spreads have come down, AAA NBFC, HFCs, and AA+ NBFCs spreads have also fallen

Corporate bond issuance for 2-3 year maturity sharply increased to 75% as a percentage of the total issuance of around Rs 680 in April 2020.It was 22.41%,43.24% 29.33% and 23.08%

The shift to Work From Home across the IT segment, is hurting REIT valuations given questions over lease renewals and rentals.

In March-April 2020, RBI provided banks TLTRO liquidity of Rs 1.128 trillion, Banks were required to acquire up to 50% of their incremental holdings of eligible instruments from primary market issuances and the remaining 50% from the secondary market, including from mutual funds and NBFCs.I

The Covid 19 lockdown has virtually stopped traffic on highways and this has affected toll collections that are the cornerstone of road projects Invits.

In the last month, AAA PSU spreads fell continuously with short end spreads down by 58-105 bps and long end spreads down by 7-52 bps across the issuer spectrum.

In an unscheduled Monetary Policy Committee (MPC) meeting on 22nd May, 2020 RBI cut the repo rate by 40 bps to 4.00%.

Union Finance Minister announced the first part of the 20 trillion stimulus package where the government has come to the rescue of credit markets by buying bonds of investment-grade NBFCs, HFIs, and MFIs in both primary and secondary markets.

The government of India revised its borrowing sharply upwards by 53% to Rs 12 trillion in FY21, and this will lead to rise in volatility in the government bond market.

Post Franklin Templeton issue, and failure of NBFC TLTRO, RBI has decided to provide Rs 500 billion Special Liquidity Facility for Mutual Funds (SL-MF). RBI will conduct repo operations ( from 27th April-11th May) of 90 days tenor at the fixed repo rate of 4.40%.

The market reaction to Franklin Templeton shutting down funds for a total of Rs 280 billion in AUM was a sell-off in financial stocks led by the largest NBFC in India, Bajaj Finance that fell 10%.

RBI TLTRO auction of Rs 250 billion held on 22nd April, saw bids for only half the amount, indicating banks have no interest in buying NBFC credit.

RBI TLTRO 2.0 will help select issuers in the NBFC space while the rest of the market will stay in a liquidity freeze on credit worries.

CP, CD yields rose across the money market curve on worries of further outflows from Fixed Income funds, as investors turn to bank deposits for safety under economic stress conditions.

Lockdown in India to fight COVID-19 is hurting the Indian economy and financial markets badly.

NTPC was incorporated in 1975 as a thermal generation company and is at present India’s largest power generating entity.

The impact of coronavirus on the economy and financial markets globally is highly visible. Read our note on Credit Carnage Globally and In India.

Indian Renewable Energy Development Agency Limited (IREDA) was incorporated on March 11, 1987 under the administrative control of the Ministry of New and Renewable Energy (MNRE).

Mutual Funds and Insurance Companies put together have lost close to Rs 90 billion on the back of RBI writing off the AT1 bonds (perpetual bonds) of Yes Bank under the reconstruction scheme.

Yes Bank AT1 bonds being written down to zero will hurt credit markets that are already under strain on global risk aversion on corona virus.

Tata Power Renewable Energy Limited (TPREL) is a wholly-owned subsidiary of The Tata Power Company Limited (Tata Power).

The impact of coronavirus is felt globally across markets leading to rising risk aversion.

Yes Bank issued its first green infrastructure bond in February 2015 for Rs 5 billion. The tenure of bonds was 10 years. The date of allotment was 24th Feb 2015. Bonds were listed on BSE.

Given surplus liquidity conditions and low repo rate and the introduction of Long Term Repo Operations (LTRO), HFC 10-Year corporate bond spreads fell as HFC yields fell.

Given surplus liquidity conditions and low repo rate and the introduction of Long Term Repo Operations (LTRO) corporate bond yields fell in tandem with government bond yields leading to steady credit spreads.

In the February 2020 monetary Policy, RBI introduced Long Term Repo Operations (LTRO) where banks can bid for LTRO, which is an ECB concept where ECB lent trillions of Euros to banks to improve credit flows, for 1 year and 3 year auctions at repo rates.

In the Union Budget 2020-21, the limit for FPI in corporate bonds was increased to 15% of the outstanding stock of corporate bonds which was 9% earlier.However, the budget is not seen as addressing the issues of growth and of frozen credit markets in any substantial way and this will keep credit markets frozen.

Total Government Borrowing (Center plus States) could cross Rs 16 trillion in fiscal 2020-21, which could impact flow of funds to credit markets.

CPI inflation printing at 7.35% for the month of December 2019 has taken out bets on any rate cut expectations leading to rise in yields at the short end of the credit cirve.

5 year AAA yields fell sharply on the bank of RBI’s statement on conducting Operation Twist for the third consecutive week.

Credit Spreads rose after RBI’s statement on conducting Operation Twist for the second consecutive week. The purchase of 10-year benchmark bond is keeping yields on the bond artificially low and this is leading to spreads rising, as yields on other bonds are almost flat

Corporate bond yields followed government bond yields on operation twist by RBI. Spreads came down post RBI statement on Operation Twist

Weak macroeconomic data increases our credit stress indicator from positive 0.04 in November 2019 to negative 0.03 in December 2019.

For the week ended 6th December, credit spreads were down. Short end PSU-G-sec spreads moved down by 6-40 bps and 10 years maturity spreads moved down by 4 bps, the spreads were at 35-84 bps across maturities.

For the week ended 29th November, credit spreads were down. Short end PSU-G-sec spreads moved down by 2-21 bps and 10 years maturity spreads moved down 2 bps, the spreads were at 49-92 bps across maturities.

For the week ended 22nd November, credit spreads were mixed. Short end PSU-G-sec spreads moved up by 1-5 bps and 10 years maturity spreads moved down by 4 bps, the spreads were at 54-94 bps across maturities.

For the week ended 15th November, credit spreads were mixed. Short end PSU-G-sec spreads moved up by 3-13 bps and long end spreads moved down by 5 bps, the spreads were at 53-93 bps across maturities.

For the week ended 8th November, credit spreads were mixed. Short end PSU-G-sec spreads moved down by 3-6 bps and long end spreads moved down by 2 bps, the spreads were at 53-98 bps across maturities.

For the week ended 1st November, credit spreads were down. Short end PSU-G-sec spreads moved down by 11-26 bps and long end spreads moved down by 2-8 bps, the spreads were at 55-109 bps across maturities.

For the week ended 18th October, credit spreads were mixed. Short end PSU-G-sec spreads moved by 3-13 bps and long end spreads moved by 4-12 bps, the spreads were at 65-123 bps across maturities.

INRBONDS proprietary Credit Spread Score System shows that credit stress can rise further and this could result in more downgrades and even defaults. The score is negative 0.33 in October 2019 against negative 0.12 in September 2019.

The almost 200bps spread differential between Mannapuram Finance and India Infra Debt Fund indicates the credit market risk aversion that is cutting off many issuers from the market altogether.

For the week ended 27th September, credit spreads were mixed. Short end PSU-G-sec spreads moved up by 1-10 bps and long end spreads moved down by 11-24 bps, the spreads were at 74-134 bps across maturities.

Big bang tax rate cut by the government on the 20th of September can lead to fall in short end of the credit spread curve.

For the week ended 13th September, credit spreads were mixed.

Expectations of Rate Cuts and RBI removing floor on overnight rates drove down yields on PSU bonds.

NBFC spreads fell on announcement of economy driving measures by the FM. Read our report on the FM measures.

The measures by the government to provide capital and liquidity to banks and improve the flow of liquidity to HFCs and NBFCs will help credit spreads to stabilize and even come off for the top quality issuers.

The sharp fall in yields on government bonds on the back of RBI rate cuts has prompted markets to buy into higher yielding benchmark corporate bonds. Top quality issuers are seeing good demand for private placements.

Rate cuts, accommodative stance and easy liquidity have not filtered into the credit markets with spreads for all issuers except for select PSU and private issuers at highly elevated levels.

Yes Bank bond spreads are trading at levels of 450 bps to over 500 bps on the back of deterioration in the bank’s balance sheet that led to rating downgrades. Read our note on Yes Bank Perpetuals. The credit market is risk averse with spreads between the PSU Bonds and all other bonds at higher levels.

Yes Bank bond spreads are trading at levels of 450bps to over 500bps on the back of deterioration in the bank’s balance sheet that led to rating downgrades. Read our note on Yes Bank Perpetuals. The credit market is risk averse with spreads between the PSU Bonds and all other bonds at higher levels.

One year CP and CD yields fell by 15bps and 30bps respectively on the back of rate cut expectations.

Three year AAA spreads fell last week on value buying, given rate cut expectations and liquidity. Markets are finding value on the 3 year AAA curve, as spreads are high.

Elevated credit spreads on the back of risk aversion in corporate bonds will come off on the back of Government’s budget announcement for partial guarantee of purchase of securitized assets of NBFCs/HFCs.

Mutual Funds are continuing to witness extreme investor risk aversion with net outflows across all funds carrying credit risk except liquid funds.

Credit spreads for the top quality AAA issuers are still high with 3, 5 and 10 year AAA spreads in a range of 80-150 bps depending on the issuer.

3 year bonds are trading at spreads of 100 bps for PSU issuers (Non REC-PFC) while top quality low credut risk NBFCs bonds are trading at 145bps spreads Such sreads look extremely attractive on the yield curve, given low interest rates and liquidity infusing measures by the RBI.

Post RBI policy, 3 years and 5 years corporate bond yields spiked with rise in credit spreads on investor nervousness of defaults.

RBI is addressing long term structural issues of NBFCs to ease systemic risk but the current liquidity crisis for NBFCs is far from being addressed.

RBI is addressing long term structural issues of NBFCs to ease systemic risk but the current liquidity crisis for NBFCs is far from being addressed.

Bond markets are wary of the uncertainties and this week election results will move bond yields.

Since March 2017, banks have raised investments in private sector corporate bonds by 32.02% , the highest growth rate seen since FY13, as per RBI data.

Fear rules credit markets with the market being virtually frozen for all credits except a few that are either government owned or having extremely strong fundamentals.

CP yields rose sharply last week, as the largest holders of CPs, Mutual Funds, faced uncertainty post credit events that hit the market in the last few months.

Market worries on DHFL default and on tight liquidity conditions took up credit spreads last week. Read our reports on DHFL and Liquidity for details.

RBI announced an OMO bond purchase auction for Rs 100 billion, schedule for 18th May, to infuse liquidity in the system.

In the last week of April 2018, RBI further relaxed investment conditions for FIIs to invest in INRBONDS.

Falling INR and rising UST yields have led to FIIs selling INR Bonds.

Mutual Fund’s exposure to G-secs was at Rs 860 billion as on March 2018, 23.77% lower against April 2017 levels.

3-year credit spreads were largely flat while 5 & 10-year credit spreads widened post RBI policy last week.

In financial year 2017-18, FIIs bought USD 18.35 billion of INR bonds against sales of USD 870 million in 2016-17 and USD 512 million in 2015-16.

MF’s exposure to G-secs was at Rs 1.01 trillion as on February 2018, which is a 3 year Low.

As on February 2018, 3 months,6 months,12 months NBFC CP yields were at 8%,8.05% and 8.20% levels respectively, yields have come down by 75 bps,40 bps, 40 bps respectively.

As on December 2017 Commercial Banks holding of Central Government Dated Securities stood at 41.4% of total outstanding.

Certificate of Deposits (CD) outstanding amount was at Rs 1711 billion as on February 2018, which has doubled in the last six months.

Since January 2018, FIIs’ exposure to unlisted corporate debt and securitised debt instruments has risen by 28.5% to Rs 157.8 billion.

As on January 2018 MF’s exposure to CPs and CDs jumped by 21.98% to Rs 3638 billion and by 37.72% to Rs 1312 billion respectively against December 2017.

Since December 2016, banks have raised investments in private sector corporate bonds by 37.23% while investments in PSU bonds declined 9.23% as per RBI data.

In the Union budget 2018-19, the government showed its intentions to consider mandating, beginning with large Corporates, to meet about one-fourth of their financing needs from the bond market and A grade rating corporate bonds as eligible for investments.

The rise in yields of government bonds has led to a significant drop of 25% in exposure of debt mutual funds in December 2017 to Rs 1.16 trillion.

In the last one-month (15th December 2017 to 19th January 2018) FIIs exposure to government securities increased by Rs 1.81 billion while corporate bonds exposure has risen by Rs 48.17 billion.

10 Year SDLs and 10 Year AAA Corporate Bonds are trading at almost similar spreads of 55-60 bps against the benchmark 10 year g-sec. SDLs are perceived as risk free given States access to the central government and RBI for funds to meet debt obligations, if required.

Manufacturing sector Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields are at levels of 6.68%, 7.30% and 7.70% respectively. NBFC Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields are at levels of 7.27%, 7.55% and 7.90% respectively.

In calendar year 2017, FIIs bought USD 23.01 billion of INR bonds against sales of USD 6.36 billion in 2016 and purchases of USD 7.4 billion in 2015.

10 years AAA Credit Spreads fell below 50 bps on a weekly basis as Corporate Bond yields turned sticky. at higher levels even as 10 years G-sec yields rose sharply to over one year highs on the back of various factors.

RBI maintained rates status quo in the policy review on the 5th and 6th of December 2017 and maintained a neutral policy stance.

3 year credit spreads rose while 5 & 10 year credit spreads were largely flat post RBI policy last week.

Since September 2016, banks have raised investments in private sector corporate bonds by 16.25% while investments in PSU bonds declined 15.36% as per RBI data.

In the first six months of FY 2017-18, amount of total corporate debt rated by credit rating agencies rose 15.62% to Rs 66,289 billion against Rs 57,331 billion seen in April-September 2016.

Manufacturing sector Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields are at levels of 6.27%, 6.70% and 7.00% respectively.

FII’s have been buying SDLs (State Development Loans) over the last 4 months (since July 2017).

Credit spreads have tightened over the last 3 months.

Commercial Papers (CP) outstanding were at Rs 4796 billion as on October 2017.

Corporate bonds net outstanding increased 17.86% since September 2016 to stand at Rs 25,868 billion as on September 2017, reaching an all time high.

CP spreads have risen over the last few weeks on the back of markets taking out rate cut expectations in forthcoming RBI policies.

Corporate bond yields rose while credit spreads were largely flat post RBI policy last week.

RBI has revised rules for FPI (Foreign Portfolio Investor) investment in Government securities.

RBI, from 3rd October, will categorise Rupee Denominated Bonds known as Masala Bonds as ECBs (External Commercial Borrowings) and allow FIIs to buy into Rs 440 billion of Corporate Bonds over the next two quarters.

Credit spreads have been ranged bound over the last 3 months with AAA credit moving in a 15bps to 20bps range.

As on 8th September, FII debt utilisation status stood at 89.60% of total limits, 42 bps higher against the previous week.

Manufacturing sector Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields are at levels of 6.22%, 6.51% and 6.78% respectively.

10 Year SDLs and 10 Year AAA Corporate Bonds are trading at almost similar spreads of 80 bps against the benchmark 10 year gsec.

Corporate bond yields closed flat last week.

NBFC Commercial Papers (CP) 3 months, 6 months and 12 months maturity yields are at levels of 6.47%, 6.75% and 6.90% respectively while spreads are at 36 bps, 55 bps and 67 bps as on 11th August.

RBI lowering the Repo Rate and maintaining neutral stance is highly positive for credit spreads.