(Image Source: The Financial Express)
India’s corporate bond market is experiencing a temporary slowdown in issuances, marking a noticeable shift from earlier momentum, though significant fundraising activity is set to accelerate this week. After a robust Thursday with issuances totalling Rs 43 billion, the market saw a sharp decline to Rs 9.2 billion on Friday, with the trend expected to continue through early Monday before a major pickup by midweek.
The pullback comes at a time when major institutions are preparing for substantial capital raising efforts. Power Finance Corp and Bank of India are leading the charge this week with a combined fundraising target of approximately Rs 160 billion. This marks a significant test of investor appetite amid ongoing market volatility and shifting fund flows.
Bond Market Issuances Decline as Investors Turn Cautious
The recent dip in bond issuances reflects a broader pattern of cautiousness gripping the debt capital market. Market concentration remains heavy in two to three-year bonds, with investors showing a clear preference for shorter tenure papers. Mutual funds are actively selling bonds with one to two-year maturity due to redemption pressures ahead of GST payments, creating a demand crunch for longer-dated papers.
Foreign portfolio investors have been net sellers, with outflows exceeding Rs 109 billion in December alone. This bloodletting from the FPI side has dampened overall market sentiment and made borrowers reluctant to tap the market at elevated yield levels. The reluctance to commit capital reflects genuine concerns about rate trajectories and the RBI’s future monetary policy stance. Although the central bank cut rates by 25 basis points in early December, yields have surprisingly hardened rather than softened, catching many issuers off guard.
Quarter-end and year-end pressures are also creating investor hesitation to build long positions. Many institutional buyers are winding down their portfolios and preparing for potential volatility ahead of the new year. This defensive positioning has made the bond market unforgiving for new issuers trying to access capital at reasonable rates.
PFC and Bank of India Fundraising Plans Test Market Appetite
Bank of India is planning a substantial Rs 100 billion issuance, marking a major event for India’s bond markets. PFC intends to raise Rs 60 billion through two separate bonds, combining both entities’ efforts into what could be a test case for market sentiment. However, this isn’t the first attempt by these institutions. PFC withdrew a Rs 3,500-crore bond issuance in early December when cut-off yields hardened to 7.17 percent against expectations of 7.10 percent.
The upcoming issuances carry particular significance because they will reveal whether institutional buyers like pension funds, insurance companies, and mutual funds have the appetite to absorb large-ticket issuances despite current market conditions. Earlier this month, Bank of India successfully raised Rs 2,500 crore through 10-year Tier II bonds at 7.28 percent, benefiting from the withdrawal of competing issuances. That success suggests there is still underlying demand, but it comes at higher rates than many borrowers prefer.
Secondary Market Trading Patterns Show Investor Selectivity
Despite the overall slowdown in primary market issuances, secondary market activity has remained relatively healthy across specific segments. Telangana State Industrial Infrastructure Corp bonds have dominated trading volumes, while Andhra Pradesh State Beverages Corp papers remain actively traded. Financial sector bonds from Bajaj Housing Finance, Tata Motors Finance, and IIFL Finance continue to attract buyers seeking yields while maintaining credit quality.
Infrastructure-focused issuers like NABARD and UGRO Capital maintain steady investor interest, suggesting that buyers are becoming increasingly selective, focusing on established entities with clear credit profiles rather than experimenting with new issuers or smaller borrowers. This bifurcation between popular names and others is making it harder for mid-tier corporates to access the bond market at reasonable rates.
Yield Hardening and Market Pressure Continue
Market observers note a slight upward bias toward year-end, which is typical for this period. However, the 10-year benchmark yield has climbed to concerning levels around 6.60 percent after states surprised with higher-than-scheduled borrowing. Indian states plan to borrow Rs 332.20 billion via bond sales this week, nearly 25 percent higher than the scheduled Rs 268.55 billion. This additional supply is testing investor patience and pushing yields higher across the curve.
The RBI has intervened with Rs 1 trillion in bond purchases and Rs 450 billion via forex swaps through December, providing some liquidity relief. However, the central bank’s hands appear somewhat tied. While recent monetary policy minutes suggested potential space for additional rate cuts next year if growth moderates and inflation remains subdued, the near-term trajectory appears biased toward higher yields.
For issuers like PFC and Bank of India, this week represents a critical window to access capital before the year closes. How successfully they raise the planned Rs 160 billion will signal whether the bond market has genuinely softened or if investors remain entrenched in defensive positioning ahead of 2026.
