Watch the event here : Grip Invesr Great Indian Bond Festival
The corporate bond market of India has grown into something much bigger than measuring its development purely by the capital raised. In the future, its true maturity would be defined by increasing retail participation and the growing ability of people to take risks amid changing market cycles.
A New Horizon for Retail Investors
The market carries a massive valuation of more than ₹59 lakh crore and holds an enormous potential despite low but rapidly growing retail participation penetration at just 1-2%. Retail investments are rising at a steady pace, with ₹30,000 crore of money being added each year. Such a good momentum demonstrates that corporate bonds are gradually moving towards becoming a popular investment product.
The Great Indian Bond Festival (GIBF) was organized by Grip Invest- an online fixed-income investing platform. Moreover, discussions at this festival have clearly shown the industry path: creating exactly the right conditions for debt participation that would be sustainable and prosperous as the market matures. The answer lies in the development of several interrelated fields: distribution, price discovery, liquidity, education and risk disclosure.
Reforming Distribution Architecture to Expand Reach
The most important process in the corporate bond market is the positive change in the distribution architecture, through which the product is discovered and distributed. In parallel with GIBF, SEBI has released a consultation paper on distribution of corporate bonds through intermediary structures like Mutual Fund Distributors. Mutual funds showed that an overall ecosystem, combined with intermediary structures and education of the investors could make a certain category comprehensive and available for millions of investors. In a similar way, expansion of the market will happen due to a reformed approach to distribution.
Educating Investors Using Modern Price Discovery
Price discovery is crucial for building confidence. When investing in a bond, a retail investor should see whether he or she gets appropriate compensation for the credit risk, duration, liquidity and structural risks. Modern technologies play an important role in creating transparency and efficiency of price, yield, tenure, rating and structure prior to investment decision, exactly as the officials of SEBI stated during the GIBF launch.
With the help of the changes that will happen to the industry, double-digit yields of 10%, 12% or 14% will become completely clear. It will become possible for the investors to analyze the particular reasons behind the higher yield and, therefore, to ask whether this return fairly compensates him/her for the risk taken. This change of perspective actively creates a smart and resilient investor base.
Creating Reliable and Predictable Market Liquidity
Liquidity of the corporate bond market becomes more transparent and predictable. Unlike equity markets, corporate bond liquidity naturally depends on the issuer, the size of the issue, its tenure and other factors. The market works successfully towards creating more transparency and predictability of liquidity using better price discovery, increasing market participation and exchange traded volumes. As it was discussed during the GIBF briefing, creating realistic expectations about execution helps to create genuine secondary-market liquidity.
Education Together with Access
Beside increasing the access, the education of the investors happens much faster. Corporate bonds provide a unique risk-reward profile, which investors are beginning to understand with the scaling of the market. By providing good information about the issuer, credit ratings, security structure, tenure, seniority and liquidity, the ecosystem makes the credit risk more understandable.
Investor education is becoming an integral part of the market infrastructure. During the GIBF, there were various activities that helped investors to understand the terms and processes. Thus, the initiative named Bond IQ made investors understand such notions like yield, tenure and credit ratings, while the festival highlighted one featured bond each day across the 18-day period to simplify product discovery.
Flourishing Ecosystem for Sustainable Development
What is the most exciting thing about it is that all the pieces of the puzzle are falling into place. Regulators are improving the distribution of bonds, market infrastructure institutions are improving participation and settlement, technology platforms are decreasing access barriers and the issuers get an increased chance to reach individual investors.
The GIBF launch successfully gathered regulators, issuers, market infrastructure institutions, wealth advisors, IFAs, family offices and fund managers. India has already demonstrated that financial products can be scaled from specialist instruments to popular investment vehicles through the development of distribution, technology, regulation and investor education. The corporate bond market follows the same path, forming a mature retail debt market with the ability to compare yields, set realistic expectations about liquidity and have good investor behavior.
If India continues developing distribution, improving price discovery, deepening secondary-market liquidity and making the risks easier to understand, the ₹59 lakh crore corporate bond market will have all the prerequisites to become an integral and familiar part of household investing.
NOTE: This article is created by Grip Invest team with inputs from VCCEdge Research Team.
Insights Focus is a marketing initiative for sponsored posts. No VCCircle journalist was involved in the creation of this content.