Top companies can raise cheaper debt as FPI interest shifts from Russia

Data show that despite overall outflows, bond sales have been minuscule compared to outflows in equities.

In the coming days, debt securities could well be back in demand with yield-hungry investors seeking new deployment opportunities after the geopolitical tension recedes.

“Once the current geo-political situation stabilises by a bit, global investors who have exited Russia could potentially come to India later this year given India’s good track record and higher yields,” said Sriram Krishnan, managing director at Deutsche Bank, India.

“This in turn should help local corporates looking to issue INR bonds as the additional investor interest could help contain cost escalation amid rising interest rates,” he said.

Foreign portfolio investors (FPIs) sold a net of $2.8 billion local equities since February 21, when markets opened to trade for the first time after the Ukraine-Russia war began. In the same period, net outflows from the local debt securities were at a paltry $154 million, data from ETIG Database showed.

Local foreign investment bankers are said to be engaging with those international investors selling India’s potential to deliver investment returns. On the global front, all international institutional investors from central banks to sovereign funds and endowment funds are deliberating possible ways to exit investment from Russia amid local regulatory ban.

“Investors are revisiting their portfolio allocation across EM countries as Russia has become non-investable on the back of the Ukraine issue,” said Hemant Mishr, founder and CIO at SCUBECapital, Singapore. This will lead to incremental demand for Indian debt papers from indexed funds that have a committed EM allocation.

“While it is not yet clear how existing investors will exit from Russia, no fresh allocations will take place in Russia in the next few years until sanctions are lifted,” he said.

North Block has planned to borrow as much as Rs 14.95 lakh crore (nearly $20 billion) in the next financial year 2022-23. While India’s expected inclusion in global bond indices is not seeing light of the day anytime soon, any additional demand from overseas investors will help check rising local yields.

“Local companies will pay higher funding costs in a rising rate scenario, but it would be capped due to an additional demand coming from offshore investors,” said Mishr.

Especially with rising global crude oil prices stoking inflation fear in the country that imports over three-fourth of its oil consumption through overseas shipments.

Brent crude extended its northward journey with prices rising over 2 percent to $115 per barrel Thursday.

Back home, the benchmark bond yield surged as much as 19 basis points pulling prices down in nearly two weeks. It yielded 6.83 percent Thursday. During the same period US Treasury yield rose just about two basis points to 1.88 percent.