Mumbai: Funds raised through commercial paper (CP) rose sharply by around 60% month-on-month to 1.51 crore rupees in August due to large issuances by some companies. This was even after rates on these instruments rose more than 25 basis points throughout the month.
According to the Prime database, companies raised Rs 1.51 lakh crore in August, up from Rs94,599 crore in July. With this, fundraising in August is the highest in the current fiscal year. Some regular issuers such as Petroleum Marketing Companies, National Bank for Agriculture and Rural Development, Export and Import Bank of India, SIDBI who usually raise funds for their fund requirements working capital and their financing needs, contributed to a strong increase in issues during the month.
“During the month of August, there was a remittance due of approximately Rs 17,870 crore to the Department of Telecommunications, Government of India from Indian telecom operators towards payment for 5G spectrum. Hence, in addition to the steady borrowing, we saw Bharti Group, Reliance Jio also tapped into the commercial paper market during this period,” said Venkatakrishnan Srinivasan, Founder and Managing Partner of Rockfort Fincorp LLP, a Mumbai-based debt advisory firm. Other issuers like Larsen & Toubro, Reliance Retails, among others, also raised funds during this period.
Meanwhile, the rates for these instruments saw a sharp rise of 20 to 25 basis points after the Reserve Bank of India (RBI) in its monetary policy raised the repo rate by 50 basis points to control inflation . The rate on commercial paper issued by manufacturing companies maturing in three months was trading at 6.30-6.45% at the end of August, against 6.10-6.25% at the end of July. While those on papers issued by manufacturing companies, they were trading at 6.10-6.30% at the end of August, compared to 5.90-6.10% at the end of July.
Along with this, Treasury bond yields have also seen a sharp rise since the RBI started raising rates. Yields on Treasury bills across all maturities rose more than 150 basis points. In August monetary policy, the central bank raised the repo rate by 50 basis points to 5.40%. It was the third policy in a row where the apex bank raised rates since May this year. So far, the central bank has raised the repo rate by 140 basis points to contain inflation. Additionally, analysts estimate the central bank will hike 35 to 50 basis points after retail price inflation in the country hit 7% in August from 6.71% in July. This comes after three months of retail price inflation in India falling from its peak. Consumer price index inflation remained above the central bank’s upper tolerance band of 6% for the eighth consecutive month.
Going forward, on the commercial paper issuance front, experts believe that oil marketing companies and telecommunications companies are likely to exploit the market and could remain regular borrowers. NBFCs can tap into the market to raise funds to meet the needs of their borrowers during the festive season that is about to begin. Telecom companies will raise funds as disbursements are made as a short-term measure. “Other regular borrowers, including NBFCs, will continue to borrow funds regularly subject to liquidity availability and finer pricing compared to banks,” Srinivasan added.