* High returns and electronic bidding lure more corporate
investors to rupee market
By Krishna Merchant
SINGAPORE, Oct 3 (IFR) - While Indian companies are taking
advantage of falling yields to raise debt, they are also
actively increasing their investments in the rupee bond market.
The emergence of major companies as investors will help to
broaden and deepen the bond market as they join traditional
buyers like banks, mutual funds and insurers.
"Blue-chip companies have become very active in the
corporate bond market since the yields are attractive and they
can generate decent trading income," said an investment banker.
The Clearing Corporation of India posted record trading
volumes of 1.15 trillion rupees ($17.26 billion) on August 12,
according to its website.
"Volumes have increased in the secondary market because
participation from large companies has increased beside mutual
funds," said Lakshmi Iyer, chief investment officer with Kotak
Corporate bonds rated AA and above are offering higher
returns relative to the shrinking yields on government
securities. The 10-year government benchmark is trading at 6.923
percent, the lowest level since June 2009, whereas corporate
bonds are offering returns that are 50bp-100bp higher.
"Companies are willing to take on some risks for slightly
higher returns because the gilts and bank deposits are offering
lower yields," said Moses Harding, an independent financial
Corporate investments in bonds are picking up at a time when
supply has increased after the Reserve Bank of India announced
regulatory changes to improve bond-market liquidity.
Private-sector borrowers have lined up public debt offerings
in the past month. Dewan Housing Finance Corporation raised 140
billion rupees ($2.1 billion) and Indiabulls Housing Finance
printed nearly 70 billion rupees using the same route.
"Corporates invested very heavily in the recent public issue
of bonds," said a fixed-income trader. Corporate investors
bought 20 percent of Indiabulls Housing Finance's recent public
offering and 10 percent of DHFL's.
The issues offered attractive returns in the range of 8.55
percent to 9.25 percent.
The introduction of electronic bidding has also encouraged
more participation from companies since they can bid directly.
"Earlier, corporates had to contact a merchant banker to bid
for an issue," said Ajay Manglunia, head of fixed-income markets
for Edelweiss. "Now, it makes sense for them to bid directly
because of more transparency and price discovery."
Meanwhile, changes in the taxation of debt funds introduced
two years ago have had the result that "taxation on
short-duration bonds and mutual fund debt funds is on par,"
Instead of locking in money in funds for three years,
companies were investing in bond issues, a DCM head said.
Earlier this year, blue-chip companies, such as Tata
Consultancy Services, Reliance Industries and Larsen & Toubro,
invested large cash holdings in government bonds. TCS bought $3
billion of government paper between January and March.
Since then, yields on government securities have fallen
further, encouraging the shift into corporate paper.
(Reporting by Krishna Merchant; editing by Daniel Stanton and