Corporate investments in debt mutual funds have seen a sharp recovery after the initial months of the pandemic saw companies pull money out of these funds. Since then, corporates parked billions of dollars in debt schemes, taking corporate investments to a three-year high.
Corporate investments in debt funds increased by 27% in the 11 months to February 2021, compared to 14% growth during the same period last year. The average monthly corporate assets under management by debt funds stood at ₹10.16 trillion as of end-February.
The liquidity-fuelled rally in Indian stocks saw many Indian companies raise funds through share sales from the public and from private equity investors. Equity capital raising in fiscal 2021 was the highest ever seen in the Indian markets. A lot of that capital found its way into debt funds, said an industry expert.
Reliance Industries Ltd, for example, invested billions of dollars into Indian debt funds after selling shares through stake sales and a rights issue. The company may have deployed as much as ₹35,000 crore across the nation’s debt houses, Bloomberg reported in July last year.
The surge in investments came at a time when the economy and India Inc. were dealing with the fallout of the pandemic and the nationwide lockdown. Even the collapse of six credit risk funds of Franklin Templeton failed to deter corporate treasuries from parking their cash in debt funds.
While the pandemic severely hit the sales of companies, they quickly resorted to financial prudence, cutting back on capital expenditure and new spending. The cost-cutting measures, aided by lower commodity prices and swift recovery in demand post the lifting of the lockdown, also left more cash on their books of companies, which they deployed in debt funds, experts said.
A Mint analysis of 2,485 publicly traded companies, which reported earnings for the three months ended 31 December, showed that net profit after adjusting for one-time items grew at the fastest pace in at least 25-quarters, at 72% from a year earlier, according to data compiled by Capitaline. That compares with a 35% rise in the September quarter and a contraction of 13% in the December quarter of 2019.
With the central bank slashing interest rates sharply to stimulate the economy, corporates found debt funds more attractive than bulk deposits with banks, the experts said.
“Many mid-sized corporates invested in one-year bulk deposits during the first two quarters of the financial year as the rates were high. However, as deposit rates dropped, corporates parked this money in liquid funds,” said the sales head of a debt fund, on the condition of anonymity. “Most of the money went into corporate bond funds, banking PSU bank debt funds and short-term debt funds.”