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Support to corporate bond market, Debt mutual funds will be a big benefit


Support to corporate bond market

Indian corporate bond market


Indian corporate bond market
The Indian corporate bond market has been relieved by the RBI's move to address the difficulties in the corporate bond market and resolve liquidity as the liquidity facility of banks to the tune of Rs 1 lakh crore for purchase of such securities led to a significant decline in yields.  The RBI said on Friday that it would give Rs 1 lakh crore to banks through targeted long-term repo operations to invest in investment-class corporate bonds, commercial securities and non-convertible debentures with maturities of up to three years.

Investment
This will above the outstanding level of investment in these bonds on 27 March 2020.  The RBI governor said in his speech that the central bank is adopting it because the fear of Kovid-19 has led to a significant sell-off in asset classes and the deepening pressure of investment withdrawal with securities like corporate bonds, commercial securities and debentures.  The need for cash has increased.  In an environment of falling lending, this is making it difficult for companies to access loans for working capital.  The first auction of Rs 25,000 crore was held on Friday and banks bid for Rs 60,000 crore.  The funds raised from this channel will have to be invested within 15 days.  Half of it will have to be purchased from primary market and the remaining half from secondary market, which includes purchases from NBFCs and mutual funds.

RBI
The RBI move led to a sharp decline in bond yields in the secondary market, but this was largely reflected only in better-rated bonds.  HDFC Limited's bond maturing in March 2022 reduced from 8.25 per cent to 6.  60 percent.  Bond returns maturing in August 2022 of Reliance Industries Ltd. 8.  From 55 per cent to 7.25 per cent while LIC Housing Finance's bond maturing in August 2022 yields 8 on Thursday.  70 per cent, which was 7 after the RBI announcement.  20 per cent.  Zarine Daruwala, CEO (India) of Standard Chartered Bank said, RBI's LTRO will reduce congestion in the credit channel and also reduce the borrowing costs, which will give the companies the relief they need.

HDFC
According to HDFC Life Insurance head (fixed income) Badrish Kulhalli, RBI's move will reduce the pressure on the corporate bond market.  He said, the number of participants had come down because doubts were increasing over the availability of funding during the lockdown period, especially towards the end of the year.  The RBI's move will bridge this gap and corporate bond yields have already declined.  As the market is returning to normalcy, borrowers will find the availability of funding in the corporate bond market.  Kulhalli said, however, in an environment of risk of credit, initial issues can only be seen from companies with leading ratings.



Debt mutual funds will be a big benefit

Debt fund managers
Debt fund managers are expecting a substantial increase in their portfolios after the Reserve Bank of India cut repo rates by 75 basis points, as well as they will be in a better position to handle investment withdrawals from liquid schemes as RBI banks  Is asking to inject more cash into the corporate bond market.  Sundaram MF Chief Investment Officer (Fixed Income) Dwijendra Srivastava said the move would re-evaluate the existing investors' debt portfolios as returns would soften.  Short-term bond market yields (where cash had fallen significantly in recent times) on Friday RBI 3.  Due to cash of 74 lakh crore rupees, it has decreased by 150 - 200 basis points.

Market participants
Market participants said the RBI's move restored trading activity in the domestic bond markets, which were almost halted due to risk.  The central bank on Friday reduced the repo rate to 4.4 per cent to reduce the impact of sluggish economic activity amid the proliferation of coronaviruses.  Apart from reducing the interest rate, the central bank has said that it will auction term repos up to Rs 1 lakh crore.

cash
Under this, the cash to be taken by banks will have to be invested in investment-class corporate bonds, commercial securities and non-convertible debentures.  In addition, banks will have to take 50 per cent of the eligible securities to be issued in the primary market and the remaining 50 per cent from the secondary market, which includes mutual funds and non-bank financial companies.  Industry participants said that this would help the Rs 5 lakh crore liquid fund category, where there is a huge investment exit as companies are looking to withdraw their liquid investment due to daily operations disruptions amid lockdowns.

Last week, MF Udyog 
Last week, MF Udyog also wrote to the RBI for cash assistance.  Fund managers said short-term plans are better positioned to benefit from the central bank's cash-raising measures.  PGIM India MF Chief Investment Officer (Fixed Income) Kumaresh Ramakrishnan said, "There will be positives in the short-term plans as the spread will come back to the right level once the cash is returned to the system."  The market saw a 150 - 200 basis point increase in yields earlier amid selling by foreign institutional investors.

According to market 
According to market participants, FIIs sold investments of Rs 8,000 to 10,000 crore in this sector, while buying in the domestic market has declined and the lockdown is impacting the price for traders and also the volume.  The total FII sales so far have been Rs 57,000 crore in March.  As a result, the returns of liquid schemes and other debt schemes were affected.  Liquid schemes returned negative as cash shrunk.  Other short-term categories were also affected as lower to medium-term plans had returns of one to three per cent.  Industry experts said the RBI's move has the potential to reduce the overall cost of funding and also help the economy to overcome the current challenges.  A targeted long-term repo operating facility will help ease pressure on short-term rates, said A Balasubramanian, managing director and CEO of Birla Sun Life MF.  All bonds with investment category are covered, which means all bonds above BBB credit can avail this facility and will see further participation in short-term rates.

indian bond market size $22 billion

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