India’s corporate bond market is facing a pause as elevated yields make fundraising less attractive for issuers. Several companies, including Housing and Urban Development Corporation (Hudco) and Bajaj Finance, recently shelved their bond issuances after investors demanded higher returns. Market watchers say that issuers are now likely to wait for better conditions before tapping the market again.
The hesitation comes after an active first quarter of the financial year, when corporate issuances were front-loaded to take advantage of relatively lower borrowing costs following the policy rate cut. However, August has been a quiet month for fresh issuances. The change is largely due to the sharp upward movement in bond yields, which has altered the cost-benefit balance for both issuers and investors.
In Hudco’s case, dealers pointed out that the cut-off yield touched 6.88 percent, a level the company was unwilling to accept. Similar pressures forced Bajaj Finance to reconsider its plans. With investors demanding higher returns to account for fiscal uncertainty, tariff concerns, and excess supply in government securities and state development loans, borrowing has become more expensive for corporates.
Experts note that corporate bond yields are closely linked to government bond yields, which have been rising since the last monetary policy announcement on August 6. The absence of any expectation of a rate cut, coupled with fears of fiscal slippages and weaker demand-supply dynamics, pushed yields higher. Government bond yields rose by 23 basis points in August and by 35 basis points since the June policy. Corporate bonds have moved in the same direction, rising more than 20 basis points since early August.
According to Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP, the recent withdrawal of issuances reflects a temporary spike in yields that made borrowing unviable. He explained that investors have turned cautious, and companies will need to be patient until the market stabilizes. Some issuers may also explore alternatives like bank credit to bridge short-term needs.
Despite the slowdown, experts believe this is not a long-term setback. The appetite for high-quality issuances remains strong among investors, even if yields are slightly elevated. Srinivasan added that a rebound in corporate bond activity could take place after September, once fiscal uncertainties ease and global market headwinds settle.
For now, many issuers are likely to adopt a wait-and-watch approach. While record issuances were seen earlier in the year, the coming weeks may continue to see muted activity until conditions turn more favorable.
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