Building a Junk-Bond Market in India and Its Impact on Overall Economy

- by Jayanta Das & Kartavya Soni *

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The fifth macroeconomic factor considered is the spread between the yield on speculative-grade bonds and the most risky class of investment-grade bonds. On the one hand, this spread determines the attractiveness for investors to invest in high-yield bonds (demand factor). On the other hand, the yield on bonds reflects the financing costs for corporations (supply factor). The higher the costs for corporations to tap the bond market, the less likely they will issue a bond.

Indian Debt Market

In most parts of the world, debt market is more popular than the equity market. The reverse is true for India. This is due to the dominance of government securities in the debt market, and the government was borrowing at pre-announced coupon rates from banks. Thus there is a passive internal debt management policy. This, coupled with automatic monetization of fiscal deficit prevented a deep and vibrant government securities market.

Source: www.sebi.gov.in

The Structure of Indian Debt Market

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* Contributed by: -
Jayanta Das & Kartavya Soni,
ICFAI Business School, Hyderabad.

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