The supply of corporate bonds in the domestic market is expected to double to Rs 65-70 lakh crore by fiscal 2025 with the financial sector contributing around 50 percent to this growth, rating agency CRISIL said.
The demand for corporate bonds, however, is likely to be Rs 60-65 lakh crore by March 2025.
“Over the next five fiscals, corporate bond issuances outstanding could more than double from around Rs 33 lakh crore or 16 percent of gross domestic product (GDP) at the end of fiscal 2020 to Rs 65-70 lakh crore – tantamount to 22-24 percent of GDP – by the end of fiscal 2025,” the agency's Managing Director Gurpreet Chhatwal said during a webinar.
The financial sector will contribute around 50 percent of the incremental supply, followed by innovation (close to 25 percent) and infrastructure (about 20 percent), the agency said.
The agency said supply-side innovations such as asset pooling, a well-capitalised credit guarantee enhancement corporation and widespread adoption of the 'INFRA EL' rating scale in the bond market can help mobilise additional Rs 7-10 lakh crore of infrastructure issuances through fiscal 2025.
This could partly help in meeting the funding for National Infrastructure Pipeline (NIP) that envisages Rs 111 lakh crore of investments between fiscals 2020 and 2025 for the country's infrastructure build-out, it said.
The agency further said demand for corporate bonds is expected to be Rs 60-65 lakh crore by fiscal 2025, despite regulatory push. This means foreign capital will be necessary to bridge the Rs 5 lakh crore gap.
Retirement funds will contribute to around 25 percent of the incremental demand, followed by insurance, mutual funds and regulatory push contributing close to 20 percent each, it said.
The rating agency said reforms including encouraging widespread acceptance of the INFRA EL rating scale, enhancing retail participation via tax sops to investments in debt mutual funds, fast-tracking proposed institution for secondary market liquidity and development of corporate default swap (CDS) market, among others can help in bridging supply-demand gap in corporate bond market.
Environmental, social and governance (ESG) profiling of Indian corporates will be key to attract much-needed foreign capital debt into the debt capital markets, it added. The agency launched its yearbook on Indian Debt Market - 2021.
According to a CRISIL release, SEBI Chairman Ajay Tyagi, who was speaking at the event, said Indian capital market over the years played a pivotal role in development of the Indian economy.
“As India is surging ahead to become an economic powerhouse, Indian capital market is expected to play a greater role and remain in the forefront in the days ahead. One of the crucial elements of Indian capital market is the corporate bond market,” Tyagi said.
He said persistent effort by the government and SEBI in the last few years enabled a nascent corporate bond market to move in the direction of maturity.“The efforts on part of the government and SEBI is ongoing. I am quite optimistic that Indian corporate bond market will summit greater heights in near future,” the release said quoting Tyagi.