Corporate Bond Market in India Set to Double by FY2030: Crisil

December 5, 2023

GS Paper III Indian Economy

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.