Corporate bonds to grow 22 per cent

New Delhi: The gross bond issuance of the Centre (G-sec), State Development Loans (SDL), Uday bonds and municipal debt are expected to remain stagnant at Rs 10.7 trillion in 2017-2018, according to rating agency Icra.

However, corporate bond issuance is likely to grow by 20-22 per cent in the financial year 2017-18, with gross issuance rising to Rs 8.5 trillion.

Icra said that gross dated borrowings of the Government of India (GoI) are expected to remain flat at Rs 5.8 trillion in FY2018, as indicated in the Budget.

However, it estimates the gross market borrowings of the state governments to rise by 22 per cent from Rs 3.7 trillion in FY2017 to Rs 4.5 trillion in FY2018, on account of larger fiscal deficits and a spike in debt repayment from FY2018 onwards among others.

Urban local bodies too are expected to make a cautious re-entry into the bond markets, with municipal bond issuance expected to remain under Rs 0.2 trillion, to fund their share of projects under Smart Cities and Amrut.

In contrast, the UDAY bonds issued by the states to replace their Discoms’ debt from banks, would taper off in the immediate term, with most states likely to complete such issuance in FY2017.  

Icra estimated that Uday bond issuance would decline to Rs 0.2 trillion in FY2018-FY2021 from Rs 1.2 trillion in FY2017.

As a result, the total gross bond issuance by the three tiers of government is estimated to remain steady at Rs 10.7 trillion in FY2018. It said that bond yields have undergone significant volatility since the note ban was announced.

With the surge in liquidity after the note ban and the market’s expectations of an imminent repo rate cut, yields of G-sec and SDL recorded a substantial decline.

The measures to absorb excess liquidity, first the temporary CRR hike, and later, the increase in the MSS ceiling, helped to stabilise bond yields.

With the Monetary Policy Committee (MPC) of the RBI, not only refraining from cutting rates in two consecutive policies, but also changing the policy stance from accommodative to neutral, the 10-year G-sec yield has reverted to the level seen before the note ban.