 "Corporate bond market set to double by FY2030 at Rs 100 trn: Report")
India’s corporate bond market is expected to more than double from Rs 43 trillion in Financial Year 2022-23 (FY23) to Rs 100-120 trillion by FY 2030, said a report by CRISIL Ratings on Monday.
The market is expected to expand at a compound annual growth rate (CAGR) of 9 per cent over the years. Capital expenditure (capex) in the infrastructure and corporate sectors is expected to increase substantially, driven by a decadal-high capacity utilisation, healthy corporate balance sheets, and a positive economic outlook. Capex in these sectors is anticipated to reach approximately Rs 110 trillion between FY23 and FY27, marking a 1.7-fold increase compared to the last five financial years. Such financing is projected to continue beyond FY27, with the corporate bond market financing one-sixth of the envisaged capex in the two sectors.
“The growth will be driven by a confluence of factors. While large capital expenditure 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, rising financialisation of household savings should drive demand. Regulatory interventions are helpful, too,” said Somasekhar Vemuri, senior director at CRISIL Ratings.
Infrastructure assets are an attractive investment due to their credit risk profile, recovery prospects, and long-term nature, said CRISIL. While infrastructure currently comprises only about 15 per cent of annual corporate bond issuance by volume, structural improvements aided by policy measures are expected to make infrastructure bond issuances appealing to capital investors such as insurers and pension funds.
Retail credit will continue growing, supported by private consumption and the formalisation of last-mile credit flow. The bond market, a crucial funding source for large non-banking financial companies (NBFCs), is expected to play a key role in funding retail credit.
India is experiencing a shift towards the financialisation of savings, as individuals shift from physical assets like real estate and gold towards financial assets. Managed investments, which have had a CAGR of around 16 per cent in the past five years, are outpacing bank deposits (10 per cent growth). Digitalisation, investor sophistication, retirement planning, use of insurance, investment objectives, and a growing middle income are contributing to the growth of managed investments.
CRISIL estimated that managed investment assets will double to approximately Rs 315 trillion by FY27, with this trend expected to persist well beyond that period. These investments are anticipated to encompass both equity and debt, with a significant portion flowing into the corporate bond market.