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An interesting case in point, is that of distressed assets. Already, the ARCIL has requested the government to allow FIIs to buy distressed assets - security receipts issued against underlying distressed assets. Currently, a bank or financial institution sells a bad loan to ARCIL, which floats a security receipt to represent it.
These can be bought and traded, which means that secondary market for corporate bonds would grow. ARCIL is expected to compute the NAV of these instruments within a year. Currently, only banks and FIIs are buying these security receipts. ARCIL, which has acquired 164 NPA accounts worth Rs. 7,362 crore for Rs. 1,762 crore, intends to recover 20% of its investment by end of 2005. Foreign funds would help achieve this target, and in the process help NPA-laden Indian banks breathe easier.

Effect on Indian Economy

Junk bonds should be looked upon as an important source of funds for middle-market companies, either new entrepreneurial companies or older firms which need new financing to change their way of doing business.

India is expected to be the most attractive destination for IT and BPO. The power and energy sector is undergoing a transformation. The real estate sector is also booming. India has been ranked as the second most attractive retail destination by AT Kearney.

Huge opportunities lie for India in Biotechnology, which is a knowledge-intensive industry. India has a good pool of scientific talent available at a very low cost. Manufacturing companies have also scaled up their operations and are trying to become global players like TATA Motors. The Telecom sector is also growing at a very rapid pace and requires a lot of funding for infrastructure development.

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