Falling interest rates have breathed life into the countrys secondary debt trading, but the market still needs more liquidity to thrive, dealers said.
Interest rates will remain low for a while and, unless there is an oversupply of paper, trading interest should pick up, a senior official at Birla Capital International AMC (Birla AMC) said.
Encouraged by last years performance, dealers said liquidity should improve further and regulators should iron out obstacles to the markets development.
A Reserve Bank of India (RBI) monetary and credit policy statement expected in the coming weeks could help the market gain further momentum, but most dealers are looking for regulatory changes to boost trading activity. Liquidity must further improve if we are to have an actively-traded secondary market, Naimtullah, managing director, SBI Mutual Fund said.
The debt market will develop in a gradual fashion but all the problems need to be looked into, said A R Prabhu, chief executive at GIC Mutual Fund. Among the problems is the unwillingness of credit rating agencies to offer a view on debt programmes for over a year, making it riskier for investment funds.
Depreciation of the paper means the fund has to make higher provisions, Prabhu said. A lack of uniformity in stamp duty across the states and a lack of market makers to provide investors with an exit option were other problems.
The market speeded up last year in response to regulatory changes, falling interest rates, and more players. Figures collated by DSP Merrill Lynch show monthly volumes traded on the debt segment of the NSE ranged between Rs 8,000 and 15,000 crore in 1997, more than double the 1996 levels.
