Building a Junk-bond Market in India and its Impact on Overall Economy

- by Ankit Chetan & Sudhanshu Duggal *

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Recommendations & Proposed Models for Junk Bonds

Based on our research, we would like to make the following recommendations for establishment of a junk bond market in India: -

1) There should be a long-term investment in junk bonds

Default rate can be defined as the proportion of companies defaulting per year. But not all companies that default go bankrupt. The recovery rate is the proportion of defaulting companies that do not eventually go bankrupt. So a portfolio’s reduction in return is calculated as the default rate times one minus the recovery rate. The loss rate, how much of the portfolio actually disappears, is simply the default rate minus the absolute percent of companies which recover.

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* Contributed by -
Ankit Chetan & Sudhanshu Duggal,
National Institute of Industrial Engineering (NITIE),
Mumbai.

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