Banks tell cos to raise funds abroad





Say Rates Will Go Up In 2015 After US Fed Tightens Monetary Stance

Banks are telling clients that this is the best time for corporates to raise funds abroad as globally rates will go up in 2015 when the US begins tightening its monetary policy .Cost of raising funds overseas has come down for Indian companies and is likely to dip further in the coming days in wake of S&P's upgrade of India's sovereign rating outlook to `stable'.

"Credit spreads on Indian dollar-denominated bonds are around 5 bps (basis points) tighter on the back of the announcement of the change in outlook. We could see a fur ther 10 bps of tightening as the market digests this news, as it was not expected. We see better value in high-grade (HG) Indian corporates over financial institutions given still-significant fundamental headwinds, especially for weaker public sector banks," said Anubhuti Sahay , economist, Standard Chartered Bank.

Bank stocks, which were hammered on Wednesday following the Supreme Court verdict on coal allocation, staged a smart recovery with the S&P BSE Bankex rising by nearly 2%.

Canara Bank gained 5.3% to Rs 360, Yes Bank rose 5.2% to Rs 574 and Punjab National Bank rose 3% to Rs 896. The rupee also ended its losing streak against the dollar and firmed up to 61.16 as against 61.35 on Thursday .

For debt issuers in the international market, the present pricing might be as good as it gets. Even if growth were to pick up, S&P rarely issues a `double promotion' by going from a `stable' outlook to an upgrade. The best issuers can hope for is a revision in outlook to `positive' after next year's Budget. However, by that time the US is expected to start tightening interest rates.

"Of the three main global rating agencies, S&P was the only one with a negative outlook on India (Moody's never changed India's outlook, while Fitch upgraded it to `stable' in 2013). Hence, the outlook change by S&P is a belated move, although it should have some positive impact on sentiment. We reiterate our view that India is entering a `Goldilocks' phase of rising growth and falling inflation," said Sonal Varma, economist with Nomura. A sudden change in sentiment on the back of global ratings major S&P revising India's ratings outlook to stable led to a nearly 350 points rally in the sensex in the closing hour of Friday, although foreign investors continued to sell. S&P said the Lok Sabha poll mandate and improved political setting offered a positive environment for reforms in India.

It also said that India's external debt position and improving current account balance also influenced its decision to revise upwards India's ratings outlook to stable from negative.

After dipping to a low of 26,354 just before the S&P decision news, the index rallied to an intra-day high at 26,712 and closed at 26,626, up 158 points on the day. The rally was totally driven by sentiment backed by buying by local investors, as end of the session data on the bourses showed a net FII selling of Rs 1,134 crore, dealers pointed out.

The close of session on Friday also saw the end of a volatile week with the sensex down a little over 450 points on a weekly basis. However, outside of the sensex, trading during these five sessions also saw mid-cap and small-cap stocks crashing.

Going forward, the market players are looking at positives from the has a truncated trading Prime Minister Narendra Modi's US visit although given the truncated 3-day trading week beginning Monday, they expect volatility . "We had a hectic and volatile expiry week which clearly points to the market losing some momentum. Expectation from Prime Minister Narendra Modi's US visit is extremely high. Although there would be good news, currently everything is factored into prices," said Arun Kejriwal, director, KRIS, an investment advisory firm.