Fixed Income Investments in Indian Market

Yesterday I was going through some of the Indian newspapers and surprised to see some articles on Indian debtblog-3 market, which is a very rare scenario where the Indian market is dominated by equities. May be it was more a tax saving investment as the equity market where more volatile and IPOs were flopped.

Whereas the developed world debt market dominates where the bond market, has experiences gains and losses in response to cyclical interest-rate, It’s like business cycle during which an economy expands, contracts and recovers could be termed as market cycle.

Before getting back to the Indian bond market let’s try to see the key components of Fixed Income securities, it’s the Credit quality, yield, and maturities are key components of fixed-income securities.

Well Credit quality is an indicator of the ability of the issuer of the fixed income security to pay back his obligation. The credit quality of fixed-income securities is usually assessed by independent rating agencies such as Standard & Poor’s, Moody’s in the U.S. and CRISIL in India. Most large financial institutions also have their own internal rating systems.

Yield on a security is the implied interest offered by a security over its life, given its current market price.

Maturity indicates the life of the security i.e. the time over which interest flows will occur.

The Govt of India is banking on public debt to woo investors. But there is no denying that the corporate bond market in India is relatively underdeveloped and illiquid, which makes pricing of new credit instruments difficult.

Moreover, the corporate bond market is dominated by high-rated papers, which are few in number.

According to ratings agency Crisil, not even 5 percent of the companies it rated in India carried the premier ‘AAA’ rating, which leaves limited options for foreign investors looking for papers with investment grades in the country.

Concluding with the remarks Bond market in India is far from perfect.

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