Since 2021, the Indian equity market has experienced unheard-of expansion. In terms of market value, the Indian stock market is among the top five worldwide and is one of the best-performing stock markets. But the nation’s bond market isn’t expanding as much as it could.
The International Monetary Fund (IMF) predicts that by 2027. India’s economy will rank third in the world. For India to accomplish this, a strong, efficient, and liquid bond market is necessary.
With corporate bonds at USD 0.56 trillion, India’s outstanding bond market is currently worth USD 2.59 trillion. The corporate bond market in India accounts for sixteen percent of the nation’s earnings. When compared to other Asian nations like China, South Korea, and Malaysia, this is incredibly low.
Indian banks are the main source of funding for enterprises in the country. At the heart of India’s financial system, the banking industry plays a vital role in preserving the stability of the national economy. A thriving bond market will give businesses access to alternative finance options.
A wider range of investors will be exposed to the credit risks and pressures that are inherent in the banking industry if more companies use the bond market to finance their operations. As a result, India’s financial system would be safer and less vulnerable to downturns and crises, which would assist the country meet its economic objectives.
Because their obligations have a comparatively shorter duration, banks are limited in their ability to offer long-term loans to businesses. Indian companies can obtain longer-term funding at a reduced cost by using the bond market. For instance, economic growth depends on investments in the infrastructure sector.
The asset-liability mismatch inherent in infrastructure projects is one of the factors that led to banks’ historical accumulation of non-performing assets. Because Indian banks are now hesitant to lend to infrastructure projects, businesses in this industry are looking for other funding sources. Indian debt market may prove to be a good choice.
