The Telegraph
Since 1st March, 1999
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Corporate bonds face bleak future

New Delhi, Nov. 26 (PTI): The country’s corporate bonds market is facing an uncertain future as majority of banks are shying away from the market after the Reserve Bank of India banned them from investing in non-statutory liquidity ratio (non-SLR) instruments, according to a report prepared by Sundaram Mutual Fund.

“Corporate bonds market has come to a grinding halt following the announcement of RBI guidelines for investment by banks. With most banks shying away from the bond market, the future looks uncertain as the liquidity of the corporate bonds have plummeted,” the fund said in its report.

It said spread had started widening and the difference in returns between ‘AAA’ rated instruments and government securities, on an average, had moved up by 0.20 per cent due to the absence of banks and primary dealers from the market.

Tightening its investment norms on non-SLR securities, the RBI had barred banks from investing in non-SLR instruments of original maturity of less than a year, other than commercial paper and certificates of deposits covered by its guidelines.

In the international markets, the fund said the yields on bonds had eased out after the recent bomb blasts in Turkey as investors fled to safety. “However, fears of a sustained GDP growth over fourth and first quarter is keeping a check on any large improvements,” it said.

About the equity market, Sundaram said there was a fall in the domestic circuit, taking the cue from international markets, whose indices lost close to 1.5-2.0 per cent.

The mutual fund said the main reasons for the decline in the indices in the domestic market were slowdown in the foreign institutional investment (FII) inflows, impending state elections and expiry of near term future contract.

“Depreciation of rupee could be one of the reasons for the net sales of FIIs apart from profit booking and fall in the international markets,” the mutual fund noted.

Among the “significant” losers during the week ended November 21 were IPCA, Aventis, Grasim, Jindal Stainless, L&T, IOC, VSNL and Zee. While the gainers included Telco, Bharat Forge, TVS Motors, LMW, Voltas, Sesa Goa, United Phosphorous, Arvind Mills, Alok Industries, Mahavir Spinning, Vardhman, Aban Loyd, GE Shipping, Digital GlobalSoft, HGL Technologies and Concor, it said.

The fund said essentially, mid-caps continued to hold investor interest.

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