In an interview with ETMarkets, Jessica Shah, Quantitative Analysis Analyst at 1 Finance, famous that whereas platforms and coverage adjustments have simplified entry to corporate bonds, most retail investors stay cautious.
Advanced risk-return dynamics, restricted transparency in default occasions, and a historic dominance of institutional gamers proceed to discourage wider retail engagement.
Nonetheless, Shah highlighted a modest however noticeable uptick in curiosity—suggesting that consciousness and trust-building will likely be key to unlocking broader participation. Edited Excerpts –
Q) Traditionally, how has a price reduce cycle influenced corporate bond issuance in India?
Traditionally, company bond issuances in India usually surge earlier than the Reserve Financial institution of India (RBI) begins a price reduce cycle. For instance, forward of the 2012-13 cuts, issuances (by quantity Rs y-o-y% progress) rose from 31% in Dec-11 to 93% in Mar-12. Equally, earlier than the 2014–17 cuts, they jumped from -44% in Jun-14 to 122% in Sep-14.
Later, throughout precise cuts, exercise usually sees continued progress as funding wants are met. This progress usually persists all through your complete price reduce cycle, solely to finally decline as soon as the cycle concludes.
Q) With price cuts anticipated, do you foresee a major uptick in company bond issuance within the coming quarters?
Company bond issuances are prone to rise sharply forward of additional RBI rate cuts. The repo price has already dropped from 6.5% in February to five.5% by June 2025, with an additional 25 bps reduce anticipated in FY26.
Nonetheless, dangers stay. If inflation halts the easing cycle or overseas traders pull again, enthusiasm might wane.A slim investor base concentrated in top-rated issuers may restrict broad market participation, probably capping what might in any other case be a powerful issuance cycle.Q) There’s been a pick-up in short-term company bond issuance not too long ago. What’s driving this pattern?
India’s company bond market is seeing a pointy rise in short-term issuances, pushed by falling rates of interest, surplus liquidity, and powerful investor demand.
Because the RBI cuts charges and inflation moderates, firms are issuing extra company bonds. Investor demand has surged because of a restricted provide of short-term authorities securities as in comparison with the demand by traders, main many to hunt alternate options in AA/AA+ company bonds. This strong demand has pushed up issuance.
SEBI’s latest reforms have additional enhanced transparency, making the bond market a extra engaging supply of short-term funding.
Are retail traders exhibiting curiosity in short-term company bonds, or is demand largely institutional?
A) Whereas institutional traders—together with FPIs, which invested ₹1.21 trillion in FY25—proceed to dominate India’s company bond market, there’s a modest however noticeable uptick in retail investor curiosity, due to digital platforms and simpler entry.
Nonetheless, participation continues to be in its early levels as a result of many traders keep away because of complicated risk-return dynamics and the opaque manner by which defaults or delays are dealt with.
ESG bond issuance has been rising in India. What’s driving the rising recognition of those devices? What sectors are main India’s ESG bond issuance?
A) ESG bonds are gaining recognition in India because of rising company adoption, mainstreaming, and powerful authorities/regulatory push, significantly SEBI’s 2025 transparency framework.
This boosts market confidence. Issuance hit USD 55.9 billion by December 2024 (186% surge since 2021), making India the 4th largest rising market in sustainable debt.
Renewable power, banking, and concrete infrastructure lead India’s ESG bond issuance. Transport, e-mobility, and industrials contribute via decarbonisation bonds.
Different sectors like actual property, water, and waste administration are additionally rising as notable areas for sustainable bond-funded tasks.
(Disclaimer: Suggestions, ideas, views, and opinions given by consultants are their very own. These don’t characterize the views of the Financial Instances)
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