June 2024: Corporate Bond Issuance Climbs Amid Robust Market Activity

In June 2024, corporate bond issuance saw an uptick, backed by favorable G-Sec yields below 7% and increased FPI inflows. Bank credit growth remained solid, surpassing 15% year-on-year. Anticipated reforms for FY25 aim to sustain this momentum, although state deficits pose challenges ahead of elections.

Devdiscourse News Desk | Updated: 10-07-2024 10:53 IST | Created: 10-07-2024 10:53 IST
June 2024: Corporate Bond Issuance Climbs Amid Robust Market Activity
Representative Image. Image Credit: ANI
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In June 2024, corporate bond issuance showed a marked improvement, fueled by projections of a 10-year Government Securities (G-Sec) yield remaining below 7%, as per a recent SBI report. The month witnessed reduced G-Sec supply, heightened Foreign Portfolio Investor (FPI) inflows, and index inclusions, which mitigated crowding-out effects. Notably, bank credit continued its robust growth trajectory, climbing over 15% year-on-year by mid-June 2024.

Looking towards FY25, bank credit is anticipated to grow at a rate of 13-15% year-on-year, spurred by progress in personal and services sectors, with emerging strengths in smaller industrial segments. This surge in funding is largely attributed to recent reforms including the reduction in face value of debt securities, eased norms around debt issuance and unlisted Infrastructure Investment Trusts (InVITs), as well as relaxed borrowing norms for Alternative Investment Funds (AIFs) by SEBI.

These reforms, alongside countercyclical measures from the Reserve Bank of India (RBI), have bolstered confidence within the financial sector. For FY25, the Union's fiscal consolidation path appears to remain intact, aided by momentum in advanced tax collections and a reduced Treasury bill borrowing schedule in Q2FY25. A substantial RBI dividend is anticipated to balance out increasing revenue expenditures, potentially paving the way for a possible credit rating upgrade.

Nevertheless, challenges linger, especially with state deficits that demand close scrutiny amid heightened borrowings and requests for special packages from several states. Preliminary state budgets signal an increase in social welfare expenditures, suggesting a phase of fiscal expansion ahead of forthcoming elections.

Economic indicators for June 2024 reflect resilience, with robust performance in metrics like Fastag revenues and railway freight. Headline inflation remains subdued due to moderating core inflation, though concerns persist over insufficient rainfall affecting vegetable prices and recent telecom tariff hikes which could slightly elevate future inflation data. On the global stage, the US Federal Reserve's cautious approach amid steady inflation and cooling labor markets keeps the possibility of rate cuts alive. US Fed Chair Jerome Powell has stressed the need for Washington to promptly address fiscal deficits.

June 2024 witnessed a drop in India's 10-year G-Sec yields to 2.18%, their lowest since records started in 2002, driven by expectations of a lenient monetary policy. This favorable borrowing environment has shifted attention to India's forthcoming Union Budget, where maintaining fiscal prudence while stimulating economic activity is eagerly anticipated.

Analysts forecast a strategic focus on enhancing rural consumption through initiatives like rural housing schemes and Production-Linked Incentive (PLI) programs targeting job-creating sectors such as renewable energy and Micro, Small, and Medium Enterprises (MSMEs). Financial markets experienced strong funding momentum, with significant activity in equity markets, corporate bond issuances, and bank credit growth. The equity markets hit new peaks, buoyed by a wave of Initial Public Offerings (IPOs) and record equity mutual fund inflows.

(With inputs from agencies.)

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