Context: According to a report by Crisil Ratings, Corporate bond market in India is expected to more than double from Rs 43 trillion in the Financial Year 2022-23 (FY23) to Rs 100-120 trillion by FY 2030.
Key Findings of Report: The Corporate bond market in India is expected to expand at a compound annual growth rate (CAGR) of 9 percent over the years.
- Key Drivers of Growth:
- Supply Side Boost:
- Large capital expenditure (capex) in the infrastructure and corporate sectors,
- Growing attractiveness of the infrastructure sector for bond investors and
- Strong retail credit growth are expected to boost bond supply
- Demand Side:
- Rising financialization of household savings.
- However only 15% of corporate bond issuances currently go to infrastructure and the credit risk profile for infrastructure assets is getting stronger, with better recovery prospects and the ability to lend long-term.
About Crisil: It is an acronym for Credit Rating Information Services of India Limited, is the first Credit Rating Agency established in India.
- It provides ratings, research, risk and advisory services to numerous companies and financial institutions.
|
Investment in infrastructure and corporate sectors is expected to boom in India.
- Infrastructure assets are becoming more attractive to investors due to their improved credit risk profile, potential for recovery, and long-term characteristics.
- Exponential Growth Forecast: CRISIL expects capital expenditures in these sectors to reach ₹110 lakh crore from FY23 to FY27.
- This is a around 1.7-time increase from the previous five fiscal years.
- This is due to several factors, including high capacity utilization, strong corporate balance sheets, and a positive economic outlook.
Retail Credit:
- Untapped Potential: India’s Retail Credit Market: India’s retail credit market is still relatively small compared to developed nations, which presents a significant opportunity for growth.
- The share of retail credit stands at just 30% of India’s GDP as against 54% in the US.
- Formalization of Credit Distribution Systems: Retail credit is also expected to grow strongly, supported by rising private consumption and the formalization of the credit distribution system.
Increasing financialization of savings:
- The increasing financialization of savings in India is also expected to drive demand for corporate bonds.
- CRISIL projects that assets in the managed investment segment will double to ₹315 lakh crore by fiscal 2027.
- Overall, the outlook for the corporate bond market in India is very positive.
India’s bond market:
- A pillar of the economy India’s bond market is pivotal in the country’s economic structure.
- As of September 2023, the government bond market size stands impressively at $1.3 trillion, with corporate bonds at $0.6 trillion.
- However, Foreign Portfolio Investment (FPI) in these markets is relatively modest at $8.5 billion.
Corporate Bond Market in India:
- Regulator: SEBI (Security Exchange Board of India), is the primary regulator of the corporate bond market in India.
Corporate Bond:
- A corporate bond is a type of debt security issued by a corporation and sold to investors.
- The company gets the capital it needs and in return, the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.
Corporate Bond Market:
- Regulator: In India SEBI (Security Exchange Board of India), is the primary regulator of the corporate bond market.
|
Also Read: US Bond Yields Rise to 16-Year High Above 5%
Source: Live Mint
December 5, 2023
