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Short-Term Debt: CP issuances down to lower market participation

Informist, Friday, Oct 22, 2021

 

By Vishal Sangani

 

MUMBAI – Fundraising through commercial papers declined today because of low market participation due to low requirement for funds and also as few companies have already rolled over papers set to mature in the next few days, dealers said.

 

Some market participants also avoided tapping the market owing to higher cutoff at a 12-day variable rate reverse repo auction today. The Reserve Bank of India set 3.99% cutoff at 12-day variable rate reverse repo auction and 3.91% weighted average rate, which was higher than the market’s expectation.

 

The RBI today conducted a 12-day variable rate reverse repo auction, which saw banks park 4.18 trln rupees as against the notified amount of 4.50 trln rupees.

 

So far today, CPs aggregating 1.75 bln rupees were issued, as against 20.50 bln rupees sold on Thursday.

 

Issuances of CPs also fell due to low demand from mutual funds, dealers said. 

 

Fund houses are holding back their investments in short-term debt instruments because they want to invest in ultra short-term CPs of non-banking finance companies in the coming days, market participants said.

 

Usually, fund houses invest in ultra short-term CPs as these investment options offer better yields in a shorter period.

 

The initial public offering of FSN E-Commerce Ventures Ltd, the parent company of Nykaa, will open on Oct 28 and close on Nov 1. The price band of the offer has been fixed at 1,085-1,125 rupees per share.

 

Rates on CPs were range-bound today because of lower issuances, dealers said.

 

Rates on three-month CPs of non-bank finance companies were quoted at 3.90-4.05%, and those on papers of manufacturing companies were quoted at 3.55-3.75%.

 

On the other hand, no certificates of deposit were issued by banks today. Issuance of CDs has been particularly scarce due to the liquidity surplus in the banking system. With growth in bank deposits consistently outpacing credit growth, banks have had little reason to tap the short-term debt market.

 

Loan growth remained muted due to lack of demand for big-ticket loans from corporates and as banks remained cautious in anticipation of rising asset quality stress due to the COVID-19 pandemic.

  

Liquidity in the banking system is estimated to be in a surplus of over 6.69 trln rupees as against 7.08 trln rupees on Thursday.

 

The surplus liquidity narrowed due to outflows on account of goods and services tax payments.

 

Rates on three-month CDs were quoted at 3.40-3.55%, in the secondary market.

 

–Primary market

* Pilani Investment and Industries Corp and Hero Fincorp raised funds through CPs.

 

–Secondary market

* Export Import Bank of India’s CD maturing on Dec 14 was dealt two times at a weighted average yield of 3.4197%

* Export Import Bank of India’s CP maturing on Mar 24 was dealt twice at a weighted average yield of 3.7301%

 

Following are volumes at 1530 IST in the secondary market for short-term debt, in bln rupees, as detailed by the Clearing Corp of India’s F-TRAC platform:

 

Certificates of deposit

Commercial papers

Today

Previous

Today

Previous

2.250.7510.8517.60

NOTE: Details of the deals have been received from market sources.

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Maheswaran Parameswaran

 

Cogencis news is now Informist. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

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© Informist Media Pvt. Ltd. 2021. All rights reserved.

Source: Cogencis

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