Indian Corporate Bonds Market –An Analytical Prospective

Bond markets in emerging markets are illiquid as investors and issuers grapple with major microstructure and legal issues. The importance of bond markets as a source of finance has increased during the economic slowdown as companies diversified away from reliance on banks for funding and many governments increased borrowing to fund the economic slowdown in their countries. Indian corporate bonds market is very illiquid vis-à-vis the Government securities market and heavily rely on AAA rated bonds for both issuance and trading. The data dissemination provided in public domain is inadequate to effectively price bonds taking all risks into account. Bank bonds demand hefty premia from investors and they are considered almost risk free with low credit spread. Investors use Credit rating information to price bonds in the market. Indian corporate sector is fast moving to international markets to raise funds through ECB / FCCB route though FCCB funding has dried up due to bad equity market conditions. Issuance market has remained concentrated with few issuers dominating the market. Financial companies like Non-Banking Finance companies dominate the market with issuances. The study did not find any significant relationship of coupon with optionality of the bond but it found that the Rating has significant relationship with coupon. Lower maturity bonds were having comparativel