The Future of Bond Markets in India

New Delhi (India), November 17: India's bond markets are evolving and expanding rapidly. It’s a great sign as they are crucial to our country’s growth. 

Bonds enable institutions like governments and corporations to borrow money and conduct their operations. For governments, this means executing welfare schemes and infrastructure projects while corporations use the borrowed money to set up new factors and expand their businesses.

On the other hand, investors of government bonds get to generate a return on their savings that’s higher than the typical savings bank interest rate.

In this article, we'll explore the key trends and factors shaping the future of India’s bond markets.

Infrastructure Development Bonds

One big reason for growth in India's bond market is the need for infrastructure development. The government is taking on huge projects in transportation, energy, and urban development. To fund these projects, governments and infrastructure companies raise funds through bonds.

In Sep 2023, SBI (State Bank of India) raised Rs. 10,000 crore through infrastructure bonds. The more important news is that the bonds were oversubscribed by more than 5 times. This means bids worth Rs. 50,000 crore were received. This demonstrates the demand for infrastructure bonds that is waiting to be met by high quality infrastructure bonds.

Retail Participation

Until a couple of years ago, it was only the big institutions and HNIs that participated in India's bond market. But of late, even retail investors have started actively exploring and investing in government and corporate bonds. 

Initiatives like the Retail Direct platform make it easier for individuals to buy government securities directly from the Reserve Bank of India (RBI). The platform had close to 1 lakh registrations until May 2023.

Many startups and investment platforms that help investors discover and invest in corporate bonds online have emerged in the last couple of years. These platforms have enabled lakhs investors to generate higher returns than fixed deposits at only marginally higher risk through corporate bonds.

Green Bonds and Sustainable Finance

Sustainable finance and green bonds have become more important as climate change has become a global challenge. As people worry more about the environment, issuers are turning to green bonds to fund eco-friendly projects.

The Government of India joined the club in 2023 by issuing green bonds worth $1 billion in 2023 across 2 tranches. The issue was oversubscribed demonstrating the demand for such bonds among institutional and retail investors.

Corporate Bond Market Development

The corporate bond market in India is on the rise. Companies are using bonds to raise money instead of relying solely on bank loans. Regulatory changes, like electronic book-building platforms for corporate bonds, have made issuing bonds easier. 

Even the ticket size of investing in many corporate bonds has fallen from Rs. 10 lakh to Rs. 10,000 now.

The Bharat Bond ETF (Exchange-Traded Fund) makes it simple for regular investors to access a mix of high-quality bonds issued by government-owned companies.

Regulatory Reforms

Indian regulators are working to improve the bond market. Measures like the "Corporate Bond Market Development Plan" and easier rules for foreign portfolio investors (FPIs) have boosted market activity. The Securities and Exchange Board of India (SEBI) introduced measures like bond indices and better debt market reporting platforms.

Global Integration and Inflows

In Sep 2023, JP Morgan announced the inclusion of Indian Government Bonds (IGBs) in their Emerging Market Government Bond Index that manages $200 billion for investors across the globe.

Because of this, other bond index providers are expected to consider and include Indian bonds in their indices prompting inflows in IGBs.

Conclusion

India's bond markets have a promising future. 

They're driven by infrastructure development, more regular people participating, digitalization, sustainable finance, regulatory changes, and global integration. 

As India's economy grows and its financial markets mature, bonds will play a bigger role in financing different sectors and providing investment options to a broader group of people. 

With strong regulation and growing interest in bonds, India's bond markets are set for a bright future.