According to the Sebi, today about 97% of the issuance and trading in corporate bond market is in just the top three categories of ‘AAA’, ‘AA+’ and ‘AA’.
The corporate bond market in India has seen growth in the last few years, but to further deepen the markets it needs participation from other market players. According to the officials in the industry, increasing the investors’ base and demand remains the key challenge in the corporate bond market. Speaking at the session on the debt market with special focus on corporate bond market at FICCI’s annual capital market conference, Ananta Barua, whole time member at Securities and Exchange Board of India (Sebi), said that in case of mutual funds they can invest up to the investment grade in their debt funds.
“Similar push needs to be given by the other regulators so that the institution can invest in papers which are up to the investment grade,” said Barua. This move could increase the number of participants and can improve liquidity and further deepen corporate bond market.
Currently for mutual funds, any debt paper that is equal or above ‘BBB-’ are considered as above investment grade while lower rated papers are being considered below investment grade. However, insurance regulator prohibits the companies from investing in bonds rated below ‘AA’.
According to the Sebi, today about 97% of the issuance and trading in corporate bond market is in just the top three categories of ‘AAA’, ‘AA+’ and ‘AA’. As compared to this, in the US, only 5% of corporate bond market trading happens in the top rating buckets of ‘AAA’ and ‘AA’ and around 75% of the trading happens in the next three rating buckets of ‘A’, ‘BBB’ and ‘BB’.
The credit events like default by IL&FS in September 2018 and later defaults and downgrades led to lower investors’ confidence but there were some innovations in the bond market. Suman Chowdhury, chief analytical officer at Acuite Rating and Research, said, “Bond market are important pillar of vibrant and growing economy. We have seen issuances of hybrid instruments, some partial guarantee structures, long-term bonds, so there has been a level of innovation.”