The EPFO (Employees’ Provident Fund Organisation) has invested Rs. 10,000 crores (minimum) in top-performing public sector undertaking bonds that include NABARD (National Bank for Agriculture and Rural Development), Hindustan Petroleum, and Indian Oil.
Some of these have proposed rates up to 9 basis points lower than identical maturity government bonds.
Keep reading to know the details!
Get an Insight into the Bond-Related Deals!
Limited issuance of corporate bonds from government-linked companies coupled with a lower supply of sovereign securities (dated) may have pressurised India’s greatest institutional debt investor to proceed with these exceptional bets with five and three-year maturities. Such deals were finalised in around 2 weeks towards February end.
HPCL, a state-owned oil refiner, fetched 5-year money offering nearly 6.09%, which is around 9 basis points less than identical maturity sovereign bonds (whose maturity year is 2027). Indian Oil Corp fetched Rs. 1,500 crores, offering returns at 6.14% with 5-year maturity – that is 4 basis points less than government papers.
In Which Direction Are EPFO and RBI Going?
EPF is likely to re-adjust bond portfolios to earn higher yields amidst a variable rate cycle. On the other hand, in the previous month, RBI (Reserve Bank of India) discarded two auctions for Rs. 48,000 crores (maximum) of bonds, due on 11 February 2022 and 18 February 2022, respectively, citing the reasonable cash balance of the government. This cut papers’ supplies otherwise predicted in the market before a fiscal year-end.
All the recent investments seem to be moving against the EPFO culture as it has started investing below ten years now. EPFO usually takes bond bets (long-term) going well above 10 years.
What about the Issuance of Bonds?
Issuances of AAA-graded PSU bonds (for primary market) have drastically dropped this fiscal, creating a limited primary supply of PSU bonds. The recent investment pattern allows the EPFO to offer at least 20% of its yearly incremental deposits for corporate bonds. However, these investments are restricted to top-performing public sector entities, rated either AA+ or AAA.
If the primary bond supply of PSU continues to stay low in the next fiscal year, then EPFO may proceed to invest in the best-performing private sector corporate bonds. On Friday, 25 February 2022, RBI revised the auction target for Treasury Bill.
Its goal is to sell short-term sovereign papers worth Rs. 1.86 lakh crores between 2-30 March 2022, which is Rs. 60,000 crores higher from the December 2021 estimate. This accelerated speculations about two or one extra weekly auctions of government securities (dated). EPFO doesn’t subscribe to Treasury Bills.
Retirement funds position money within investment pattern limits since they are not allowed to sit on the money. This makes it mandatory to invest in public sector undertaking bonds, specifically when there is a short supply of sovereign securities. EPFO purchases from the primary market and doesn’t invest through the secondary market.
Frequently Asked Questions
1. How much does SIDBI raise?
SIDBI (Small Industries Development Bank of India) offering 5.57% raised Rs. 2,500 crores, less than a set of government bonds (whose maturity month is May 2025).
2. When did EPF come into existence?
Employees’ Provident Fund (EPF) came into existence on 15 November 1951 after the Employees’ Provident Funds Ordinance was put into effect.
3. Which Act replaced EPF?
The Employees’ Provident Fund Act of 1952 replaced the EPF. The Parliament introduced the Employees’ Provident Funds Bill as Bill No. 15 of 1952.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.