Thread by @Funter21510910

Corporate Bond Market in India - A snapshot

Corporate Bond Market comprises of all the debt fund-raising/ financing/ fund mobilisation activities by Corporates through debt capital market instruments - Debentures or Bonds. Read on to know more about this market. Thread 1/12

As per SEBI data, the total outstanding corporate bonds in India aggregate to ~ Rs. 30.63 lakh crore.

This is about one third the size of the G-Sec market as well as the aggregate of Bank credit (i.e. total outstanding loans of banks). 2/12

The accumulated value of all the Corporate Bonds outstanding is only about 16% of the GDP.

In comparison, the size of the US corporate bond market to GDP is ~124%. It shows that the corporates in India rely heavily on banks. 3/12

Almost 90% of all corporate bonds are fixed rate bonds i.e. the bonds are plain vanilla in nature.

Exotic bond offerings with sophisticated structures are a rarity. This is a sign of an under-developed and heavily regulated market. 4/12

Majority of bond issuances (~95%) in India are done through the Private Placement (i.e. offering bonds to institutional investors) route. Private Placement route requires fewer disclosures and is cheaper than Public issue route and hence is preferred. 5/12

If we look at the sectoral break-up of the corporate bond issuers, almost 80-90% of the issuances are from issuers in infrastructure and finance sectors. The share of manufacturing companies is only about 3-5%. 6/12

The highest rated (AAA) issuers constitute about 50-60% of all issuers. This shows that the corporate bond market in India is skewed towards higher rated bonds. The investment regulations of banks, insurance companied, retiral funds etc. have caused this skewness. 7/12

Similarly, if we analyse the secondary market trades, we find that the highest rated bond (AAA & AA) trades accounted for more than 90% of all bonds traded. This hints at the illiquidity of lower rated bonds. 8/12

As per Crisil Year Book, MFs, insurance companies and Retiral Funds (EPFO, Exempted Trusts and NPS) are the largest holders of corporate bonds. Banks , despite their size, stand at the fourth position. 9/12

As per an RBI Bulletin, 50% of all the bonds issued are unsecured in nature. This is on account of large borrowers viz PSUs, Banks, HDFC, Tata Sons, other AAA issuers issuing unsecured bonds. Lower rates bonds are usually secured. 10/12

Owing to the large demand from mutual funds, the tenure of the bonds issued are usually less than 5 years. In FY18, almost 67% of all bonds issued had a tenure of less than 5 years. 11/12

PSU bonds crowd out other corporate issuers in the corporate bond market. Almost 42% of all issuances in FY18 were from the top 10 issuers. Top 10 is largely comprised of PSUs. 12/12

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