4 reasons why the Indian corporate market is set to double by FY30, according to CRISIL

India’s retail credit market’s share in the GDP — at 30 percent — is “way smaller” than developed nations

The Indian corporate bond market is set to double in six years, according to CRISIL Ratings.

Currently, the size of the bond market is Rs 43 lakh crore in FY24 and it will grow to Rs 100-120 lakh crore by FY30, stated the rating agency.
This will be driven by three factors on the supply side and one on the demand side.

Also read: India's bond market norms: How they have evolved over the last decade

Somasekhar Vemuri, Senior Director, CRISIL Ratings said, "While large capital expenditure (capex) 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."

He added that regulatory interventions were helpful too.

Capex in the infrastructure and corporate sectors is expected to be driven by decadal-high capacity utilisation, healthy corporate balance sheets and strong economic outlook, noted CRISIL, in its note, adding that it foresees capex of ~Rs 110 lakh crore in these sectors between FY23 and FY27, which is around 1.7x what it was in the past five fiscals.

Also, infrastructure assets are looking attractive to investors because of their improving credit risk profile, recovery prospects and long-term nature. Though infra makes up only 15 percent of the annual corporate bond issuance by volume, structural improvements supported by various policy measures "should make infrastructure bond issuances amenable to patient-capital investors — insurers and pension funds — the key investor segment in the bond market".

On retail credit growth, the report said that it is expected to maintain pace "supported by private consumption growth and formalisation of last mile credit flow".

Also India’s retail credit market's share in the GDP — at 30 percent — is "way smaller" than developed nations. For example, retail credit in the US, for instance, was around 54 percent of its GDP at the end of the calendar year 2022.

Non-banking financial companies (NBFCs), which cater to smaller segments such as retail credit, use bond markets as a funding source. In addition to this, CRISIL noted, "the revised risk weights announced by the Reserve Bank of India (RBI) for bank exposure to NBFCs can tilt their funding mix in favour of bonds".

On demand side

On the demand side, the financialisation of savings in India could have people looking for new investment instruments such as corporate bonds, the analysts noted.

Also read: Sebi eases norms for mandatory bond issuances, announces incentives for surplus

Noting the investor interest moving towards capital-market assets, the report stated, "The money getting financialised is increasingly being invested in capital market products. Among financial assets, managed investments6 have clocked a ~16% CAGR, compared with ~10% CAGR for bank deposits over the past five years."

The report added that CRISIL estimates assets in the managed investment segment to double to around Rs 315 lakh crore by fiscal 2027, and these investments will be in both equity and debt and a "good portion of it may flow to the corporate bond market".