Approvals for external commercial borrowings (ECBs) sought by the India Inc in the first five months of FY23 fell 24% YoY to $8.3 billion.

Given the larger increase in policy rates by central banks in developed economies and consequent rise in overseas borrowing costs, the all-in borrowing costs for Indian corporations have been higher than domestic funding costs and are likely to remain so in near term. This is projected to keep approvals low at $30-35 billion this fiscal, compared to $38.6 billion in FY22 and $35.1 billion in FY21.

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With overall bond issuances at Rs 3.3 trillion in H1 and anticipated bond issuances of Rs 3.7–4.2 trillion in H2, the overall domestic bond issuances are expected to be at Rs 7.0-7.5 trillion. This will represent a growth of 4-11% over issuances of Rs 6.8 trillion in FY22.

Even though policy tightening by the RBI is likely to continue, the magnitude of incremental hikes may be less than hikes since May 2022. ICRA anticipates incremental policy rate hikes until December 2022 with an increase of 25–35 basis points followed by a hiatus. Furthermore, with a big government borrowing programme and an incremental rate hike of 25–35 basis points, 10-year G-Sec rates are projected to harden to 7.7% in the short term and remain between 7.3% and 7.7% in the long term.

ICRA anticipates net outflows from the foreign institutional investor (FII) segment at $8–13 billion in FY2023, down from outflow of $16.0 billion in FY22. If prospects for additional monetary tightening by the US Fed soften, projected FII inflows into the stock segment may resurface in Q4FY23.

Foreign direct investment (FDI) inflows in FY2023 will be largely in line with the previous year at $55-60 billion, despite the fact that flows in five months of FY23 will trail the previous year’s level by 11%.