The year 2017 has seen an increase in corporate debt security transactions at BSE and NSE stock exchanges by 37% (Rs 17.72 lakh crore) as per official data while NSE showed the largest of 75% in corporate bonds trading, worth Rs 13.41 lakh crores. Trading in corporate bonds has been on the rise since 2011. This rise is a result of structural and cyclical factors driving the bonds and commercial paper markets as suggested by Pawan Agarwal, Crisil’s Chief analytical officer.
The cyclical factors are reduced interest rates while structural factors include the introduction of insolvency and bankruptcy law, which have the capacity to make the ratio of bonds to GDP twice in the coming 4–5 years, constant focus on shifting big corporate houses away from banks introduction of green bond and municipal bond guidelines. Also, the improvements which allow more investors to get involved in the bonds market as well as the inability of the banks to provide large funding, especially in infrastructure which is estimated at Rs 50 lakh crore in the next 4–5 years.
Generally, when a bond is bought with a certain amount, they are supposed to get it back on their particular maturity date along the rate of interest.
For an insight to 2018, Arun Gupta, the vice president and sector head of ICRA is of the opinion that the banking sector’s credit growth might see a rise, which makes way for domestic savings. Also, the issuing of bonds will rely on yield movements and liquidity in the market. He also added that the corporate bond market is greatly affected by institutional investors, which means there is limited participation of retail markets unlike that of equity markets. So, if the retail participation in the corporate bonds can be incorporated, we may see increased trade volumes and liquidation.