Largest lender State Bank of India’s (SBI) retail bonds , which were bid over four times the offer and were beyond the reach of millions of investors, may yield a 5% return when it begins trading on Monday. The attractive yields may prompt institutional investors who did not get those bonds in public sale to lap up when they trade, say investment advisors.
The Rs 10,000 face value bonds may be traded in Rs 10,400-10 ,500 range, reflecting the grey market trading value. “I expect these bonds to get listed at minimum Rs 10,400-10 ,500. Because at this level, it will also offer 9.15-9 .30% interest over a 15-year period.
With considerable interest from institutional investors such as retirement funds and not many primary issuances expected, these bonds may see a price of Rs 10,600, resulting in an yield of 9%,” says the head of fixed income at a domestic broking firm. The 9.5% SBI 2025 bond is now trading at a yield of around 9.15- 9.18%. SBI’s Rs 2,000-crore public sale of 10-year bonds at 9.75% and 15-year ones at 9.95% with call options, last month, received bids for around Rs 8,500 crore.
While more than two lakh retail investors got full allotment, funds and wealthy individuals who bid for more than Rs 5 lakh were given just a fourth of what was bid for. It was allotted on a firstcome-first-serve basis.
The bonds, considered near sovereign, yielding more than a percentage point, will be a draw for insurance companies, pension funds and other long term investors. There are many retail investors, too, who missed the bus since they were accepted in just 126 or less than a percentage of its branches.
Middle class investors in smaller towns and retirees complained that they were being discriminated against which bank chairman OP Bhatt said would be rectified during the next sale. The sale was supposed to take the bond culture to retail investors had just one collection centre in Guwahati for eight North-Eastern states.
Bihar and Jammu & Kashmir had one each and Gujarat, the most prosperous state, at least 15, and Mumbai alone seven. The early gains may not last, given that some investors may flip and that there are prospects of higher rates, given the Reserve Bank of India’s continuation of anti-inflationary stance.
“There could be some selling pressure for listing gains by those who had bought the issue to flip. Long-term investors should not sell on listing,” says Vishal Dhawan, founder, Plan Ahead Wealth Advisors. The interest received on these bonds will be treated as income from other sources and shall form a part of the total income of the assessee in that financial year in which they are received. There are no tax benefits for investing in these bonds.
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