Company investments in debt mutual funds have seen a pointy restoration after the preliminary months of the pandemic noticed firms pull cash out of those funds. Since then, corporates parked billions of {dollars} in debt schemes, taking company investments to a three-year excessive.
Company investments in debt funds elevated by 27% within the 11 months to February 2021, in comparison with 14% progress throughout the identical interval final yr. The typical month-to-month company property below administration by debt funds stood at ₹10.16 trillion as of end-February.
The liquidity-fuelled rally in Indian shares noticed many Indian firms elevate funds by way of share gross sales from the general public and from non-public fairness traders. Fairness capital elevating in fiscal 2021 was the very best ever seen within the Indian markets. Lots of that capital discovered its method into debt funds, stated an trade skilled.
Reliance Industries Ltd, for instance, invested billions of {dollars} into Indian debt funds after promoting shares by way of stake gross sales and a rights situation. The corporate might have deployed as a lot as ₹35,000 crore throughout the nation’s debt homes, Bloomberg reported in July final yr.
The surge in investments got here at a time when the economic system and India Inc. have been coping with the fallout of the pandemic and the nationwide lockdown. Even the collapse of six credit score threat funds of Franklin Templeton failed to discourage company treasuries from parking their money in debt funds.
Whereas the pandemic severely hit the gross sales of firms, they shortly resorted to monetary prudence, slicing again on capital expenditure and new spending. The price-cutting measures, aided by decrease commodity costs and swift restoration in demand submit the lifting of the lockdown, additionally left extra cash on their books of firms, which they deployed in debt funds, specialists stated.
A Mint evaluation of two,485 publicly traded firms, which reported earnings for the three months ended 31 December, confirmed that internet revenue after adjusting for one-time objects grew on the quickest tempo in no less than 25-quarters, at 72% from a yr earlier, in response to knowledge compiled by Capitaline. That compares with a 35% rise within the September quarter and a contraction of 13% within the December quarter of 2019.
With the central financial institution slashing rates of interest sharply to stimulate the economic system, corporates discovered debt funds extra enticing than bulk deposits with banks, the specialists stated.
“Many mid-sized corporates invested in one-year bulk deposits throughout the first two quarters of the monetary yr because the charges have been excessive. Nevertheless, as deposit charges dropped, corporates parked this cash in liquid funds,” stated the gross sales head of a debt fund, on the situation of anonymity. “A lot of the cash went into company bond funds, banking PSU financial institution debt funds and short-term debt funds.”