In an interview with ETMarkets, Jessica Shah, Quantitative Research Analyst at 1 Finance, noted that while platforms and policy changes have simplified access to corporate bonds, most retail investors remain cautious.
Complex risk-return dynamics, limited transparency in default events, and a historical dominance of institutional players continue to deter wider retail engagement.
However, Shah highlighted a modest but noticeable uptick in interest—suggesting that awareness and trust-building will be key to unlocking broader participation. Edited Excerpts –
Q) Historically, how has a rate cut cycle influenced corporate bond issuance in India?
Historically, corporate bond issuances in India often surge before the Reserve Bank of India (RBI) begins a rate cut cycle. For example, ahead of the 2012-13 cuts, issuances (by amount Rs y-o-y% growth) rose from 31% in Dec-11 to 93% in Mar-12. Similarly, before the 2014–17 cuts, they jumped from -44% in Jun-14 to 122% in Sep-14.
Later, during actual cuts, activity often sees continued growth as funding needs are met. This growth typically persists throughout the entire rate cut cycle, only to eventually decline once the cycle concludes.
Q) With rate cuts expected, do you foresee a significant uptick in corporate bond issuance in the coming quarters?
Corporate bond issuances are likely to rise sharply ahead of further RBI rate cuts. The repo rate has already dropped from 6.5% in February to 5.5% by June 2025, with a further 25 bps cut expected in FY26.
However, risks remain. If inflation halts the easing cycle or foreign investors pull back, enthusiasm could wane.A narrow investor base concentrated in top-rated issuers may also limit broad market participation, potentially capping what could otherwise be a strong issuance cycle.Q) There’s been a pick-up in short-term corporate bond issuance recently. What’s driving this trend?
India’s corporate bond market is seeing a sharp rise in short-term issuances, driven by falling interest rates, surplus liquidity, and strong investor demand.
As the RBI cuts rates and inflation moderates, companies are issuing more corporate bonds. Investor demand has surged due to a limited supply of short-term government securities as compared to the demand by investors, leading many to seek alternatives in AA/AA+ corporate bonds. This robust demand has pushed up issuance.
SEBI’s recent reforms have further enhanced transparency, making the bond market a more attractive source of short-term funding.
Are retail investors showing interest in short-term corporate bonds, or is demand largely institutional?
A) While institutional investors—including FPIs, which invested ₹1.21 trillion in FY25—continue to dominate India’s corporate bond market, there is a modest but noticeable uptick in retail investor interest, thanks to digital platforms and easier access.
However, participation is still in its early stages because many investors stay away due to complex risk-return dynamics and the opaque way in which defaults or delays are handled.
ESG bond issuance has been rising in India. What’s driving the growing popularity of these instruments? What sectors are leading India’s ESG bond issuance?
A) ESG bonds are gaining popularity in India due to growing corporate adoption, mainstreaming, and strong government/regulatory push, particularly 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 emerging market in sustainable debt.
Renewable energy, banking, and urban infrastructure lead India’s ESG bond issuance. Transport, e-mobility, and industrials contribute through decarbonisation bonds.
Other sectors like real estate, water, and waste management are also emerging as notable areas for sustainable bond-funded projects.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
