The most important piece of the need for a better developed bond market in India is access to capital for more firms. Currently only the top-rated borrowers have access to the corporate bond market. To know more @ http://theindianeconomist.com/india-developed-bond-market/

1. Eight years have passed since the 2008 financial crisis and the United States is
finally showing signs of recovery. Unemployment is down and job creation is
growing. With the Federal Reserve rising interest rates in December, the US is
attracting foreign capital quickly.
However, there is still a chance for Indian markets to attract global investors.
To know more information, please visit at http://theindianeconomist.com/india-
developed-bond-market/
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2. Unlike most other major economies, India is on a high-growth trajectory. Capital
that is seeking riskier investments for higher returns, is actively looking for better
risk-reward opportunities.
India offers riskier markets than the West (and hence greater returns) but as the
European Central Bank (ECB) and the Fed slowly normalize (tighten) monetary
policy, Indian markets will be faced with tough competition overseas.
http://www.theindianeconomist.com

3. The Indian economy relies on government debt
One way that Indian firms and the Government of India (GoI) can attract foreign
capital more effectively is through the development of the bond market. Bonds can
offer a useful set of securities for investors and allow them to diversify their
portfolio of investments in India.
http://www.theindianeconomist.com

4. The Government Securities (G-secs) market is fairly developed; about 75% of the
Indian market is Government-issued debt. This is unusual. For most other major
debt markets, the corporate debt (company issued bonds) portion of it plays a
much larger role. Corporate debt markets provide an extensive set of investing
opportunities, with a host of debt instruments (bonds and bond derivatives),
offering exposure to the Indian economy. Debt markets traditionally offer a less-
risky investment than stocks (equity).
http://www.theindianeconomist.com

5. Currently, it is mostly only large Indian banks and the government that issue
tradable bonds in the market. Most other entities use private placements (loans
from banks) as debt. India lacks a centralized database for information about
tradable bonds and a functional trading platform. There are inconsistencies in how
bond prices and yields are calculated and listed.
Corporate bonds are the key
The most important piece of the need for a better developed bond market in India
is access to capital for more firms. Currently only the top-rated borrowers have
access to the corporate bond market. Further, banking and financial services
account for 74% of primary bond issues in the country.
http://www.theindianeconomist.com

6. Hence a more developed, unregulated bond market might allow more firms access
to cheaper or more efficient debt capital, through a higher risk-taking culture
among investors.
On the policy side, Raghuram Rajan, the previous RBI Governor, mentioned that
bank lending rates are inefficient in passing through changes in the interest rate by
the central bank. He has also said that markets reflect interest rate changes more
efficiently. Further reforms from the central bank are required if more firms are to
gain access to the bond market. This comes at a time when the independence of
the RBI is constantly questioned in the light of demonetisation in 2016. The
government may attempt to protect the traditional public sector banks and hence
private debt markets.
http://www.theindianeconomist.com

7. It is important to remember that 95% of debt in India are bank loans. Thus, there is
a dire need for a more efficient credit market to pass through shifts in monetary
policy. This becomes particularly important for infrastructure projects. If they can
get access to cheaper capital at interest rates that better reflect monetary policy
through tradable bonds, then they might not choose to get bank loans to finance
projects. And when infrastructure projects can be financed more efficiently using
publicly traded bonds, more of them are executed.
http://www.theindianeconomist.com

8. A whole new asset class
Thus, there is a dire need for a more efficient credit market to pass through shifts in
monetary policy.
Developed bond markets will create a new asset class in India that attracts foreign
capital. It will be an efficient allocator of capital and will bring more firms into the
market. To realize these benefits, the RBI took an important step in August 2016 to
liberalize bond markets by allowing banks to raise capital through rupee-
denominated bonds (Masala Bonds) in foreign markets.
It also allowed both resident and non-resident Indians to maintain big open
positions in the bond market. This step will expand the investor base and hence the
capital inflow into the economy. With more deposits in banks today than ever
before, there is a lot more money available to facilitate this move. And for you, it’s
a chance to earn high returns on otherwise immobilized money.
http://www.theindianeconomist.com

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