The latest Reserve Bank data indicates that in the July 15 fortnight it fell to Rs 26,000 crore as one of the biggest issuers-HDFC is now out of the market. Fresh issues have been slowing since June this year. Interest rates ranged from 6.7 per cent to 13.1 per cent during the fortnight. Significantly fresh issues fell even as the rates have not hardened and have remained range bound around 6.7 percent since May.
Commercial paper or CP is a market instrument through which firms can raise short-term funds that could range for a tenor of one week to 364 days. Top rated firms can manage to raise funds cheaper directly from the markets than going to banks to meet their working capital requirements when rates are softening. A select top rated manufacturing companies and some large NBFCs regularly raise from the CP markets.
Analysts point out that some large players have reduced their dependence on CPs or completely exited the market. “Some large issuers including HDFC – one of the biggest issuers are also absent from the CP market.” Arun Kumar Bhansal executive director and head of treasury at IDBI Bank. HDFC’s CP issuances last year was 95000 crore and this year’s first quarter it was 15000 crores. ” Besides there is also some confusion over disclosure norms prescribed by the market regulator. So some issuers are holding back issues ” Bhansal said.
Market analysts said that some regular better rated borrowers from the CP market like Sidbi and Nabard have reduced their CP issuance by 75% in July as compared to the second fortnight of June. ” This is because CPs are being replaced by certificates of deposits where they get a better price,” Bhansal said.
Also other top rate borrower National Highways Authority of India (NHAI) now gets funds allocated through the budget and hence moved out of the CP market. ” For the investors, the supply of (high quality) corporate bonds and CPs have thinned down and investors are looking for other alternatives to CPs like short-term government bonds where tenors match,” said Radhika Rao, chief India economist at DBS Bank.
Another explanation being offered is that working capital requirements of manufacturing firms have possibly come down due to some softening of raw material prices and also that higher interests could also make bank funds cheaper for some borrowers.