CP Market Sees High Stability, Resiliency in Issuances: India Ratings

India Ratings and Research (Ind-Ra) has published the first edition of its quarterly Commercial Paper (CP) Market Dossier. The report encompasses the trend and dynamics of CP issuances in the latest quarter, overview of CP rates, liquidity assessments of Ind-Ra rated issuers, and any potential risks.

The 1QFY22 trend suggests that the market has shown resilience amid the uncertain period of the second covid wave, the rating agency has said.

"Moreover, on the longer-term basis, the rising number of issuers in a month suggests broadening of the market, though there is a concentration risk pertaining to the tenor of borrowings.

There has also been a meaningful improvement in the risk appetite of investors, which has enabled issuers rated A+ and below to access the market. The premium for these issuers has been significantly higher than higher rated ones, reflecting the risks of illiquidity in the market for trading/refinancing such instruments. While these are positive signs for the development of the CP market, this needs to be sustained over interest rate and credit cycles to benefit issuers lower down the credit curve," Ind-Ra has said.

Lumpy Issuance by NBFCs & HFCs in June

The overall dynamics in the commercial paper market appears to be encouraging, says India Ratings. The market has shown resilience during the second covid wave, as reflected in issuances by corporates and associated risk premia. Though corporate issuances were resilient in that period, issuances by non-bank finance companies (NBFCs) and housing finance companies (HFCs) dropped considerably. Though the June data show NBFC and HFC issuances have recovered to pre Covid-19 level, this has largely been contributed by lumpy issuances by the AAA rated NBFCs and HFCs.

The agency believes that the market seems to be pricing some uptick in short-term rates, owing to changes in growth-inflation dynamics. The market is conscious about the sharp rise in inflation and encouraging corporate activities amid the lockdowns.