India Inc rushed for short-term debt on revival signs | Economic Times

Mumbai: The value of Commercial Papers (CPs) sold in September surged nearly 50 per cent compared to August, the latest RBI data showed, reflecting demand for short-term money amid signs of economic revival.CPs are short-term debt instruments with maturities of up to 12 months generally. Besides non-banking finance companies, manufacturing and services companies are permitted to sell CPs.Reliance Industries, Aditya Birla Finance, Bajaj Finance, Larsen and Toubro, Godrej group, HDFC and SAIL were among those that raised Rs 1.94 lakh crore in cheaper short-term funds, either to repay high-cost bank debt or meet rising working capital requirements, the data showed. The amount is 17 per cent higher than the year-ago period.“Companies are finding it prudent to repay bank loans by borrowing cheaper via commercial papers,” said Ajay Manglunia, head of institutional fixed income at JM Financial. “They are also shoring up cash for working capital as many of them are returning to normalcy now gradually. Both demand and supply are evenly balanced with mutual funds subscribing to A1+ papers,” he added.Average yields on CPs were at 4.27 per cent in September, according to data compiled by JM Financial. This is lower than bank credit, which is priced after adding a mark-up or spread over benchmark rates.Corporates also sold CPs worth Rs 87,092 crore till October 16, marginally lower than the corresponding period last year. The average yields were at 3.94 per cent compared with 6.14 per cent last year, the data showed.“Mutual funds have surplus cash to deploy,” said Mahendra Jajoo, chief investment officer of fixed income at Mirae Asset Investment Managers (India). “Borrowers, too, find it fit to raise short-term money from CPs compared to banks. For rate transmissions, the CP market is always ahead of others, with mutual funds leading the move,” Jajoo said.State Bank of India’s Marginal Cost of Funds-Based Lending Rates (MCLRs) are in the range of 6.65 per cent -7 per cent for one to twelve months. Experts are factoring in an economic revival and say the worst may be over after India’s GDP tanked nearly by a quarter during the April-June period. Barclays has projected the economy to grow at 2.1 per cent in the October-December quarter compared to a contraction in the preceding two quarters.Financial services, oil exploration and housing finance companies together accounted for two-thirds of the total issuances in September. Public sector undertakings, including Indian Oil Corp, Nabard and NTPC, accounted for around 45 per cent of new CPs sold in September, higher than their 37 per cent share in August, a report by Care Ratings said.