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Global Funds Dump India Company Bonds, Worsening Cash Crunch

Rahul Satija
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Global Funds Dump India Company Bonds, Worsening Cash Crunch

(Bloomberg) -- Global funds have slashed holdings of India’s corporate bonds, adding to a cash crunch at local companies already facing an economic downturn.

Foreign money managers have cut holdings in the notes for a fifth straight month to near a five-year low of 1.59 trillion rupees ($21 billion), according to National Securities Depository Ltd. data.

Investors have grown concerned as the country of 1.3 billion people struggles to contain the coronavirus pandemic even after undertaking the world’s biggest lockdown. India started a phased lifting of the restrictions earlier this month. A team of data scientists at the University of Michigan projects the outbreak will nearly triple over the next month to more than 800,000 cases, a situation that would put pressure on its rickety healthcare system.

“There is lack of clarity on how and when India will be able to overcome the coronavirus crisis,” said Raj Kothari, head of trading at Jay Capital Ltd. “India’s handling of the pandemic is keeping foreign investors away.”

Many Indian firms face shrinking options for meeting funding requirements. Most sources of capital, including bank credit, mutual funds’ debt investments and dollar bond issuance are drying up for all but the safest borrowers. With record corporate bond maturities this year, the firms that depended on offshore note buyers as a key source for refinancing now face fresh challenges.

Global rating companies are warning of slow economic recovery. Fitch Ratings Ltd. changed its outlook on India’s sovereign ratings to negative Thursday, saying that the pandemic has “significantly weakened” the growth outlook. Moody’s Investors Service also downgraded the country’s ratings earlier this month and kept its negative outlook.

On top of that, the local currency has slid about 6.4% so far this year, the biggest drop for the period since 2008.

“The weakening rupee is further making India’s corporate bonds less attractive,” Kothari said.

(Updates with a chart on Indian rupee.)

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