I have been evaluating the corporate bond market as well as CP (courtesy of the DHFL, ILFS/NBFC fiasco) of late.
Currently, with low liquidity, AAA corporate papers of companies like HDFC Bank, HDFC, Gruh, Cholamandalam are available at yields of 8.5-9.5% (coupon rates are lower ofcourse). It would be interesting to see how these yields move over the next year.
Aspire Home Finance bonds are available at 10.5% where the issuer is promising to buy back bonds a month prior to issue to avoid full tax on interest and only incurring capital gains tax. While Aspire is doing terribly as a home finance company, it is a division of MOFSL and is backed by it with little risk of default given their strong brokerage franchise and wealth and fund house all of which require little to no capital. This looks like an extremely tempting way to lock down a 10.5% pre tax return until valuations provide bit more comfort. Does anyone have experience investing in bonds? While it is easy to value equity as a range of probabilistic outcomes, debt/bonds are a binary game - either you get all of your money back or you dont!
Simply speaking at todays inflation rate of 4-5% one is getting a 4-5% real rate of return on a AAA rated debt instrument and upto 6% on a slightly inferior instrument! It also made me think - and some members here might say I am generalising too much - for a hypothetical investor starting off with 100% cash today - at current level of valuations of good quality companies on one side and a 4-5% real rate of return on debt on the other, shouldnt broader valuations be providing significantly more comfort to justify allocating more to equity today? How does bond market yields (and real rate of return on them) compare with forward rolling equity returns over the next 3/5/7 years at various points in history?
On searching for a thread of debt markets on valuepicker, I couldnt find any and thought to create a new thread where people can share their experiences and wisdom of investing in debt. I have been trying to search of a an index which provides data on yields of AAA corporate papers over the last 5/10/20 years but couldnt find any. Any help would be appreciated.
Is MOFSL liable for servicing the debt of a subsidiary? Generally, the point of using subsidiaries and limited liability structures is to prevent any kind of harm to the parent company or other sister subsidiaries.
I recently invested a small amount in IFCI Secured NCDs at a yield of 14%. Maturity is less than 1.5 years.
IFCI is lower rated (A or thereabouts), but it is a PSU NBFC. Also, the credit rating assumes support from the government, otherwise the rating would be much lower. After buying, am wondering if the market is irrational, or I am misinformed
Also want to add that when one assumes a real yield of 4-5%, one has to be cognizant of the fact that you are (usually) comparing future interest with past inflation. Ideally you should compare with expected future inflation, but that strategy has its own pitfalls.
Also wondering if anyone tracking Edelweiss and its subsidiaries’ debt. Might be interesting as it seems to be trading at over 10% yield.
All AA rated bonds are trading at 10%+ yield and Edelweiss is no exception when their coupon rates itself is very high. Take a look at Reliance Home Finance (series : 87RHFL20B - Individual) has YTM of 18% with 16 months of residual maturity. Don’t think there is a default risk here.
Is there liquidity at 18% yields in Reliance Home Finance? Frequently you can buy only small amounts, this is also a problem with IFCI NCDs.
I would think Edelweiss would be a better credit than RHF, due to the management quality, though I have not studied the financials.
Also, Indigrid is an interesting alternative, but it takes a whole lot of understanding, and comparing the yields to that of fixed income securities in a simplistic manner may not be appropriate.
For NBFCs CAR is also a factor in determining YTM these days and Edel’s lending arm is low on capital these days. There is a market dislocation in shorter maturity bonds due to liquidity issues which will not last forever. Indi Grid is very good asset since reinvestment risk is negligible. One could remain invested for 5-7 yrs without worrying about churn and after 3 yrs capital gain tax is almost negligible as well. I think they could increase distribution for the next few yrs at least given the quasi sovereign guarantee and transmission investment opportunity available here. I am planning to shift my dad’s FDs there shortly.
Yes, liquidity is a problem in corp bonds and one has to be patient with limit orders. Indi Grid is reasonably liquid BTW.
Recently invested in Tata Capital (AAA), Shriram Transport Finance (AA) and Manappuram Finance (AA) NCDs. Thought they were offering good coupon rates and last two had monthly payout options too. Did not consider others like JM Financial, Aadhar housing.
Tata Finance is the only AAA rated NCDs open currently. Rest all are below this grade. In the recent past also there was lot of interest for Tata Capital and L&T Finance NCDs since both were/are AAA rated.