Mumbai, Jan 14 (PTI) The structural and cyclicalfactors have helped transactions in corporate debt securitiesat top stock exchanges BSE and NSE surge by 37 per cent to arecord Rs 17.72 lakh crore in 2017, as per official data.
Trading worth about Rs 13 lakh crore in corporatebonds was reported on the two bourses during 2016, going bydata compiled by capital market regulator Sebi.
During the year gone by, the National Stock Exchange(NSE) represented the largest share of trading in corporatebonds at 75 per cent. Bonds worth Rs 13.41 lakh crore weretraded on the exchange in the period.
The stock exchange had witnessed trades amounting toRs 10.5 lakh crore in 2016, when it represented over 80 percent of the corporate bond transactions.
The remainder of the bonds worth over Rs 4.30 lakhcrore were traded on the BSE during 2017 -- a whoppingincrease of 80 per cent from the same period year-ago.
The exchange has increased its market share in thesegment to nearly 25 per cent last year compared to 18 percent in 2016.
Corporate bond trades in the country have seen anupward trend in most of the financial years since 2011 whenthe trade dipped by 15 per cent.
"We believe there are both cyclical and structuralfactors driving the significant growth in the bond markets(including the commercial paper market)," Crisil's chiefanalytical officer Pawan Agrawal told PTI.
The cyclical factors include the significant declinein the interest rates, which makes accessing bond and CPmarkets more cost effective, compared to banks, he said.
The structural factors include financialisation ofsavings; implementation of insolvency and bankruptcy law,which can potentially double the bonds to GDP ratio in next4-5 years; regulatory focus on shifting large corporates tobond market away from banks and issuance of green bond andmunicipal bond guidelines, Agrawal said.
Besides, growth in bond markets is driven by greaterinnovation in instruments, vehicles and structures allowingmore issuers and investors to access bond markets; constraintsin the banking system's ability to provide funding, and largefunding requirements to build infrastructure in the country,estimated at Rs 50 lakh crore over next five years.
Corporate bonds or debt securities issues allowcompanies to raise funds for various business purposes likebuilding a new plant or purchasing equipment.
When an entity buys a bond, one lends money to thefirm that issued the security and in exchange the companypromises to return the money with interest on a specifiedmaturity date.
Giving an outlook for 2018, ICRA vice president andsector head (financial ratings) Anil Gupta said, "Withrecapitalisation of public sector banks, the credit growthfrom the banking system is expected to improve for which wemay witness increased competition for domestic savings.""Accordingly, we expect the bond issuances will remaindependent on the yield movements and liquidity situation inthe markets. Softer bond yields and comfortable liquiditysituation may act as positive factors for continued growth ofthe bond markets during CY2018," he said.
Agrawal said further regulatory steps to encouragerepo in corporate bonds, reducing dependence on financialsector issuers, setting-up of bond guarantee fund, anddeveloping reliable benchmark yield curve and credit eventreporting mechanism can further encourage future growth in thebond markets.
On the other hand, Gupta noted that corporate bondmarket is largely dominated by institutional investors as morethan 95 per cent of the debt issuances are on privateplacement basis.
"As a result, the retail participation in corporatedebt market is limited unlike equity markets. Further, theticket size of the listed privately placed bonds is also highas compared to retail bonds thereby limiting the retailparticipation in listed corporate bonds that are privatelyplaced," he said.
An increase in direct retail participation incorporate bond market is likely to provide a significantfillip to the corporate bonds by way of increased demand aswell as improvement in trading volumes and hence liquidity,he added. PTI SSMGK.
This is unedited, unformatted feed from the Press Trust of India wire.