The Indian corporate bond market is on track to experience significant growth, with projections indicating a doubling from ₹43 lakh crore in FY24 to a range of ₹100-120 lakh crore by FY30, according to a recent report by CRISIL Ratings.
This noteworthy expansion is anticipated to be driven by a combination of supply-side and demand-side factors within the Indian corporate bond market, as highlighted in the report. Three key factors on the supply side, coupled with a significant demand-side driver, are expected to propel this growth trajectory.
CRISIL Ratings Senior Director, Somasekhar Vemuri, stated, “While large capital expenditure (capex) in the infrastructure and corporate sectors, growing attractiveness of the infrastructure sector for bond investors, and strong retail credit growth are expected to boost bond supply, rising financialisation of household savings should drive demand.” Vemuri also acknowledged the supportive role of regulatory interventions in this context.
On the supply side, the report emphasizes the role of substantial capital expenditure (capex) anticipated in both infrastructure and corporate sectors. These investments are expected to be fueled by the highest capacity utilization in a decade, robust corporate balance sheets, and a positive economic outlook. CRISIL’s predictions suggest capital expenditures reaching approximately ₹110 lakh crore in these sectors from FY23 to FY27, marking a 1.7x increase compared to the preceding five fiscal years.
Additionally, the infrastructure sector is expected to garner increased attention from bond investors due to enhanced credit risk profiles, potential for recovery, and long-term characteristics of infrastructure assets. Despite constituting only 15 percent of annual corporate bond issuance by volume, ongoing structural enhancements and policy measures are anticipated to make infrastructure bonds attractive to patient-capital investors, including insurers and pension funds.
The expansion of retail credit is identified as another crucial driver on the supply side. Sustained momentum in retail credit growth, driven by increased private consumption and the formalization of credit distribution, is expected to contribute significantly to the growth of the corporate bond market.
Furthermore, the report highlights the favorable impact of revised risk weights announced by the Reserve Bank of India (RBI) for bank exposure to non-banking financial companies (NBFCs), particularly those specializing in retail credit. This adjustment is expected to tilt the funding mix in favor of bonds, strengthening the bond market as a funding source for NBFCs.
On the demand side, the report identifies the increasing financialization of savings in India as a pivotal factor. The trend of individuals exploring alternative investment avenues, including corporate bonds, is expected to gain momentum. CRISIL’s report notes, “The money getting financialised is increasingly being invested in capital market products.”
The report projects that assets in the managed investment segment, which includes both equity and debt, will likely double to approximately ₹315 lakh crore by fiscal 2027. A substantial portion of these investments is expected to flow into the corporate bond market, contributing to its robust growth in the coming years.