Feb 2019 Moneycontrol
Retail investors should invest in the top notch names such as HDFC, LIC Housing Finance or the bonds issued by central government undertakings since there is a little credit risk.
Retail investors should invest in the top notch names such as HDFC, LIC Housing Finance or the bonds issued by central government undertakings since there is a little credit risk.
High networth individuals normally show interest in credit funds, but this is missing now. Overloading of NBFC papers may have dented returns as the market battled a perceived crisis over the ability of those companies to repay.
Given that the 10-year benchmark is trading at 7.3 per cent, investors get 200 basis points (2 percentage points) on an AAA-rated paper of Mahindra Financial, and about 240 basis points higher in Shriram Transport, which is a good opportunity for investors.
As per regulatory guidelines, interest on the perpetual bonds will be paid out of net profit for the current year. Banks can use revenue reserves to pay interest, in case there is a shortfall, subject to RBI guidelines.
Post IL&FS rating downgrade, all NBFCs are resorting to all avenues to raise funds. Corporate deposits are one of them, as companies are trying to offer additional higher rates than bank fixed deposits.
Despite yields shooting up, the demand for these NCDs has shrunk.
Safety is a priority for investors in this environment. They will opt for only companies where there is comfort.
As current account deficit widens due to higher oil prices, interest rates are expected to move further up. The 10-year benchmark could trade between 8.20 and 8.35% in the next three months.
Short-term bond yields are attractive and most of these bonds charge low expense ratios. As they are open-ended schemes, you can sell out if need be. That makes short-term bond funds a lucrative investment option.
Last two years, none of the debt mutual fund schemes have performed up to the mark. Investors have switched to retail bonds as they seek to earn higher interest income regularly.
More non-banking finance companies are likely to come with higher rates as they jostle to tap the retail money.This will also help those companies to expand retail reach, a key business driver for them.