The size of outstanding issuances in India’s corporate bond market is set to more than double and top the Rs 100 lakh crore mark over the next five to six years, as the infrastructure sector looks to step up spending and more individuals opt for financial savings, CRISIL Ratings said.
The rating agency expects the outstanding size of the corporate bond market to grow from Rs 43 lakh crore in the previous fiscal year to Rs 100-120 lakh crore by 2029-30, providing much-needed depth in fund-raising opportunities for companies through debt. Over the past five financial years, the corporate bond market has registered a compound annual growth rate of 9%, CRISIL said in a report.
“While large capital expenditure 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. Regulatory interventions are helpful, too,” said Somasekhar Vemuri, Senior Director, CRISIL Ratings.
Over the past year, the government and regulators such as the Securities and Exchange Board of India and the Reserve Bank of India have taken fresh steps to achieve the long-standing aim of deepening the corporate bond market.
In July, Finance Minister Nirmala Sitharaman launched a backstop fund for the corporate bond market worth Rs 33,000 crore as well as the AMC Repo Clearing Limited, which facilitates repo transactions in corporate bonds and helps firms meet their short-term financing needs.
“The RBI and SEBI have already mandated large borrowers to tap the corporate bond market for incremental borrowings. Growth may get a leg up if the regulators address some key issues, such as relaxing the investment restrictions on corporate bonds rated below ‘AA’ for insurance and pension funds and fortifying the credit default swaps market,” said Ramesh Karunakaran, Director, CRISIL Ratings.
CRISIL believes that capital expenditure in the infrastructure and corporate sectors will be driven by capacity utilisation at a 10-year high, robust corporate balance sheets and a firm outlook for India’s economic growth.
In the period from FY23 to FY27, CRISIL estimated capital expenditure worth Rs 110 lakh crore in these sectors, around 1.7 times more than that in the past five fiscal years.
“CRISIL Ratings expects this pace of capex to continue past fiscal 2027 (2026-27). The corporate bond market is expected to finance a sixth of the capex foreseen,” the firm said.
The appeal of debt instruments issued by infrastructure players stems from their improving credit risk profile, recovery prospects and their long-term nature, CRISIL said, pointing out that at present infrastructure accounts for only 15% of annual corporate bond issuances by volume.
On the retail side, credit growth is seen remaining strong due to growth in private consumption and the greater reach of lending. Given that non-banking financial companies complement banks to facilitate credit growth to untapped areas, the bond market occupies the role of a crucial source of funds for larger NBFCs, CRISIL said.
Greater adoption of financial assets over physical assets such as real estate and gold is seen boosting demand for capital market instruments like corporate bonds, the company said.
