Besides, the report showed that the scheduled commercial banks' holding of corporate debt rose 27 per cent to Rs 2.45 trillion as of April 15 this year as compared to the same period a year-ago, led by the increased holding of public sector undertaking bonds (Rs 1.14 trillion).
Assets under management under the debt mutual funds grew 20.7 per cent annually to Rs 9.85 trillion at April-end.
However, it noted that the guidelines by the Securities Exchange Board of India to cap fund houses' exposure entity-wise, group-wise and sector-wise have impacted fund holding of NBFCs' commercial paper at Rs 630.4 billion (down 2.9 per cent year-on-year).
As per the report, bond issuance in sectors such as non-banking financial corporations (NBFCs), banking/term lending and power (primarily renewables, transmission and UDAY bonds) would outpace the growth in issuances from industries like manufacturing, engineering and cement.
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During January-April period this year, major issuances (Rs 288.3 billion) were found to be concentrated in power, financial, real estate and road sectors, Ind-Ra data showed.
According to Ind-Ra, appetite for corporate debt would be driven by domestic investors and that given the nature of these investors, bond market development is likely to be restricted to investment grade categories (AA and above).
"With the 150 bps policy rate cut by the RBI already underway since January 2015, scope for a further meaningful cut appears limited in fiscal 2016-17," Ind-Ra said.
"Additionally, global volatilities continue to loom such as the US Fed's interest rate trajectory and the economic condition in China," it added.