The Securities & Exchange Board of India (Sebi) has issued entities no-objection certificates to set up electronic systems for the order matching of corporate bond papers. This means companies and investors can transparently trade bonds on exchange platforms to arrive at the best possible prices.
The move will also create conditions for the listing of bonds on exchanges. Sebi has already allowed BSE, NSE and other recognised stock exchanges with a nationwide network to set up corporate bond trading platforms. This is part of the overall plan to widen and deepen the debt market.
In October, Sebi received confirmation from BSE and NSE that they are prepared to introduce a repo market for corporate bonds. Currently, holders must mark-to-market their bonds, as they cannot be used as collateral in the inter-bank repurchase market, thus limiting their utility.
There are already signs that the Indian capital markets? over dependence on equity has begun to shift gear. There has been a 263% rise in the total outstanding investment in the domestic debt market since Jan. Attractive interest rates, currency appreciation, lower risk and advantages of portfolio diversification seem to be luring foreign investors, say analysts.
Outstanding FII investment in this segment has risen sharply to over $2.92 billion in October from nearly $2.33 billion in September, with data from January to October showing a steady rise. A five-year domestic bond gives a neat 4% higher interest rate than a similar bond in the US market and, after factoring in currency appreciation, the overall return in the debt market can be 10-11%, making it fairly attractive, said G Ramachandran, head of global research group, ICICI Bank.
The Indian rupee has appreciated the most in the last year, at about 12%, after the Canadian dollar (22%) and the Thai baht (13-14%), providing another reason for foreign investors to invest here.
Sebi chairman M Damodaran has recently said limits on FII investment in the corporate and government bond markets in India would be relaxed soon. He also said the regulator was about to complete regulations related to the corporate bond market and the securitisation market.