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One possible viable avenue is a high yield junk bond scheme offered by mutual funds to institutional and retail investors. These funds would give investors the advantage of research professionals doing extensive analysis on these companies whose stocks are rated as junk.
These funds also lower investors' risk by diversifying their investments across different types of assets. Mutual funds like income mutual funds and corporate bond funds can also have a small allocation for high yield funds.

In USA, we can see that in recent years, growing shares of new high-yield bonds have been issued under Rule 144A. The rule simplifies and expedites the sales of securities available for resale only to institutional buyers. Qualified mutual funds, pension plans, insurance companies and private money managers may purchase Rule 144A issues. In 2003, Rule 144A issues accounted for nearly 85% of new high-yield bonds coming to market.

Other possible takers would include FIIs, since globally in their desperation for yield, institutional investors are buying lower grade credits. According to AMG Data Services, emerging market debt funds have returned about 12% over the past year. Junk bonds are also a hot ticket. Junk bond funds sucked in $1.2 billion in the week ended April 2, 2004. Hence, an Indian junk bond market would attract investment from such foreign players keen on high yield bonds.

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* Contributed by -
H. Sandeep Reddy & Puneet Jain,
Indian Institute of Management Kozhikode,
Kozhikode, Kerala.