The Bombay Stock Exchange (BSE) building, left, looms over a no-entry street sign in Mumbai. Photographer: Prashanth Vishwanathan/Bloomberg

India's Second-Oldest Mutual Fund Wary on Debt From Financiers

(Bloomberg) -- India’s second-oldest mutual fund has grown wary on non-banking financial companies after landmark defaults by IL&FS group fueled a cash crunch in the sector.

Canara Robeco Asset Management is exercising caution on investments in short-term debt issued by NBFCs, as the fallout from Infrastructure Leasing & Financial Services Ltd. adds to strains caused by asset-liability mismatches. The company is a joint venture between Canara Bank and Netherlands-based asset manager Robeco.

IL&FS shocked India’s credit markets with missed payments on commercial paper and other short-term borrowings starting in August. Challenges have since mounted. NBFCs must repay about 1.2 trillion rupees ($16.4 billion) of commercial paper in October-December to mutual funds, near a record 1.46 trillion rupees in August-October. That’s just as yields on five-year top-rated bonds issued by the lenders have jumped to near the highest in four years at 9.12 percent.

“A triple-A bond is top-rated till it blows out,” said Avnish Jain, head of fixed income at Canara Robeco Asset Management, in an interview. Investors need to be more vigilant in tracking market rumors about NBFCs at this point, he said.

Canara Robeco had exposure to some IL&FS commercial paper that it exited in May.

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