Indian corporate bond market to double in the next six years, says CRISIL

The growth rate will majorly be driven by three factors on the supply side and one on the demand side of the Indian corporate bond market, the report stated. 

“While large capital expenditure (capex) in the infrastructure and corporate sectors, growing attractiveness of the infrastructure sector for bond investors and strong retail credit growth are expected to boost bond supply, rising financialisation of household savings should drive demand,” said Somasekhar Vemuri, Senior Director, CRISIL Ratings, adding that regulatory interventions were helpful too.

Investments in infrastructure and corporate sectors are anticipated to be fueled by the highest capacity utilization in a decade, robust corporate balance sheets, and a positive economic outlook, as highlighted by CRISIL in its statement. The note further predicts capital expenditures of approximately ₹110 lakh crore in these sectors from FY23 to FY27, marking a 1.7x increase compared to the levels observed in the preceding five fiscal years.

Moreover, investors find infrastructure assets appealing due to their enhanced credit risk profile, potential for recovery, and long-term characteristics. While infrastructure constitutes only 15 percent of the annual corporate bond issuance by volume, ongoing structural enhancements, backed by diverse policy measures, are expected to render infrastructure bond issuances attractive to patient-capital investors such as insurers and pension funds, who play a pivotal role in the bond market.

Regarding the expansion of retail credit, the report anticipates a sustained momentum, backed by the growth in private consumption and the formalization of the final stage of credit distribution.

Moreover, the share of India’s retail credit market in the GDP, standing at 30 percent, is considerably lower than that of developed nations. As an illustration, the United States, for instance, had retail credit constituting approximately 54 percent of its GDP by the close of the calendar year 2022.

Non-banking financial companies (NBFCs), specializing in smaller segments like retail credit, rely on bond markets as a source of funding.

“The revised risk weights announced by the Reserve Bank of India (RBI) for bank exposure to NBFCs can tilt their funding mix in favour of bonds,” CRISIL report said.

The analysts observed that on the demand side, the increasing financialization of savings in India may lead individuals to explore alternative investment avenues such as corporate bonds. 

“The money getting financialised is increasingly being invested in capital market products. Among financial assets, managed investments6 have clocked a ~16% CAGR, compared with ~10% CAGR for bank deposits over the past five years,” the report stated.

According to the report, CRISIL projects that assets in the managed investment segment will likely double to approximately ₹315 lakh crore by fiscal 2027. These investments are expected to be distributed between both equity and debt, with a substantial portion potentially flowing into the corporate bond market.

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Updated: 04 Dec 2023, 09:11 PM IST