Strong need to deepen corporate bond market

Written by fe Bureau | New Delhi | Updated: Feb 28 2013, 10:40am hrs
Taking a cue from reforms in the equities market that helped deliver the best returns in 2012, India has to now deepen its corporate bond market to channelise savings and help spur growth, the Economic Survey said on Wednesday.

Though India has been a late starter in the process of reforming financial markets, a package of reforms since 1990 has helped in making the capital market one of the most vibrant and transparent.

"However, there are still certain challenges in the development of the financial sector which need to be addressed to make it an important avenue for productive channelisation of savings by domestic investors and a preferred investment destination for international investors. A reasonably well-developed corporate bond market is very much required in any economy to supplement banking credit and the equity market," the survey said.

Among the major Asian and markets, India has been the best performing in terms of returns during 2012. The Indian indices Nifty (up 27.7%) and Sensex (up 25.7%) was just behind Germany's DAX that rose 29.1% in 2012. Both Nifty and Sensex beat other major indices like Japan's Nikkei and Hong Kong's Hangseng (each up 22.9%), Singapore's Strait Times (19.7%), USA's S&P 500 (13.4%).

"Reinvigorated foreign institutional investor (FII) inflows into the country in 2012 helped the Indian markets become one of the best performing in the world, recovering sharply from their dismal performance in 2011," the survey said. The total net FII flows to India in 2012 stood at $31.01 billion.

During April-December, resource mobilisation through equities from the primary market jumped to R13,050 crore compared to R12,857 crore.

Though the development of the corporate bond market has been an important area and has received greater policy attention in recent times, the survey said "it is yet to take off in a significant manner.

Some of the issues that need to be addressed in this regard include drawing a roadmap for a structural shift from a bank-dominated financial system to a more diverse system where corporates access finance from capital markets, strengthening of the legal framework for regulation of corporate debt and relaxation of investment guidelines for pension, provident and insurance funds to enable the participation of long-term investors in the corporate bond market.