Reports indicate that institutions that are allowed to raise tax-free bonds in 2012-13 could mop up only Rs 25,000 crore as against the permission to raise Rs 60,000 crore.
It is learnt that investors are not showing much interest in the tax-free bonds as interest rates are expected to fall further in the coming months. Yield on tax-free bonds are set below the yield of the 10-year benchmark government bond. With falling interest rates, the yield is expected to drop significantly from current levels, making tax-free bonds an unattractive investment option, analysts feel.
According to industry watchers, coupon rates have come down already and going forward, it is may decline even further, making these bonds less attractive.
For many people, a coupon rate of about seven per cent in a 10-15 year tax-free bond issue is not an attractive investment, due to which it will be difficult for infrastructure companies to raise money through this route in 2013-14, some analysts said.
The Union Budget 2013-14 allows certain infrastructure entities to raise tax-free bond worth Rs 50,000 crore in 2013-14, Rs 10,000 crore less than allowed for 2012-13.
Analysts feel that the yield on the 10-year benchmark government bond, currently at 7.89 per cent, would drop 20-30 basis points (bps) by end-September.
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