Commercial Paper Market – Analysis

In our earlier article we had discussed the commercial paper product covering features, eligible issuer, investors, benefits and so on. The same can be accessed here. In this article we analyze the commercial paper market in India.

Volumes :

The monthly average issuance volume for the market over the past two years has been approximately INR 2 lakh crores. The commercial paper market touched a high of INR ~ 3 lakh crore issuances in August 2018 (just a month before IL&FS default) and a low of INR ~ 1.1 lakh crore in January 2020.

As can be seen above the monthly issuance rate has been sloping downwards.

Curious case of March’20 : Interestingly Mar’20 witnessed a sudden surge in volumes as more than INR 2 lakh crore worth of issuances took place in the month. However, if one analyses the data, it is evident that a large portion of CPs were issued by broking/wealth houses to provide financing to HNIs for SBI Cards IPO subscription. The volume for these “IPO financing CPs” was close to INR 75,000 Cr. Adjusted for these issuances, the volumes for March fall down to INR ~1.25 lakh crore.

Issuer Base
• The commercial paper market remains dominated by entities rated A1+ in short term rating scale. More than 99% of the volumes comes from these entities.
• Number of participating entities has decreased over the past couple of years as illustrated below:

• Top 5 entities contributed to ~22% of the market while top 10 entities contributed to ~34%.

Company Name% of Issuance Volumes
IOCL6.46%
NABARD5.14%
RELIANCE JIO INFOCOMM LIMITED4.94%
HDFC LIMITED3.04%
RELIANCE INDUSTRIES LIMITED2.76%
VEDANTA LIMITED2.58%
RELIANCE RETAIL LIMITED2.55%
CHENNAI PETROLEUM CORPORATION LIMITED 2.55%
BAJAJ FINANCE1.93%
HPCL 1.89%

• Financial entities (inlcuding All India Finance Insitutions, NBFCs, HFCs, Broking Institutions) are the largest issuers in the market and have contributed to almost 40% of the issuance volumes over the past couple of years.

Tenor :
Even though the CP papers can be issued for a tenor of upto one year, most of the market is concentrated towards the shorter end of the spectrum. Close to 90% of the volumes have a tenor less than equal to 91 days (~16% of the volumes have tenor less than a month).

Tenor ( no. of days )% of Total Issuance Volumes
1-9189.66%
92-1824.96%
183-2730.88%
274-3643.84%
365-4550.65%
Grand Total100.00%

Investors
Mutual funds are the largest investors in the market and have invested in 65% – 90% of the monthly issuances over the past two years.

MonthTotal Outstanding CP AmountMutual Fund Exposure to Outstanding CPs.% Allocation to CPs from Overall Debt Exposure taken by Mutual Funds
Apr-204,17,22768%24%
Nov-194,21,98980%26%
Jun-194,58,41681%30%
Feb-195,09,41080%32%
Oct-184,83,08091%36%
Jun-185,60,61073%33%

Other investors in the market include Bank Treasuries, NBFCs, Corporate Treasuries, Alternate Investment Funds, HNIs.
Recently Foreign Portfolio Investors (FPIs) have also been allowed to participate in this market.

Issuing and Paying Agent (IPA) :

• HDFC Bank, Axis Bank and Yes Bank are the dominant IPAs in the market and acted as IPAs in ~65% of the issuances over the past two years.
Yes Bank’s market share has seen a drastic drop post the recent crisis in the bank.

The ongoing crisis in NBFC sector has significantly altered the dynamics of the CP market – in the third article of this series we will analyse how market dynamics have changed post the IL&FS default.

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