Earlier this week, the RBI stated that debt MFs have now got a reasonable share of their plentiful liquidity in the system, and this has helped them to come out of the Franklin Templeton fiasco.
Last month, debt mutual funds got an additional lift after reports of Reliance Industries parked a chunk of their incomes from its stakes in Jio Platforms in liquid funds. The net asset value of funds in various categories has risen sharply in the recent few months due to low interests, and this has in turn made investing in debt funds attractive for investors.
Thanks to the proactive approach of the central bank, borrowing costs have fallen sharply and has led to record primary issuance of corporate bonds of INR 2.09 lakh crores in the months from April to June.
The market financing conditions for NBFCs had become challenging in the past few months. This has also largely stabilized now, thanks to targeted policy measures.
The spread over similar tenor G-secs narrowed from 360 basis points to 139 basis points for AA+ rated 3-year NBFC bonds. The spreads for corporate bonds have also narrowed down.
The spreads of AAA-rated corporate bonds have also declined from 276 basis points to 50 basis points as of 31 July 2020.
Similarly, the spreads on AA+ rated bonds have reduced from 307 basis points to 104 basis points, spreads on AA bonds fell from 344 basis points to 142 basis points; and spreads came down by 125 basis points even for lowest investment-grade bonds (BBB-).