The bond or fixed-income market size is rapidly expanding in India. Data available from SEBI and CCIL show that in the last five years, the total bond market value has surged over 77 per cent to Rs 192.4 lakh crore in the financial year (FY) 2023 from Rs 108.8 lakh crore in FY18. In FY24, the total value of outstanding bonds in the Indian market stands at Rs 205.3 lakh crore as of September 30, 2023.
In the Indian bond market, the total value of government debt or government bonds stands at Rs 161.1 lakh crore, holding a 78 per cent market share, while corporate bonds have a 22 per cent share at Rs 44.2 lakh crore as of September 2023. Bonds or fixed-income securities offer a constant money flow at regular intervals and are considered less risky than equity. Corporate bonds offer higher interest rates, while government bonds are considered highly secure for investment.
Bond market veteran Vishal Goenka, Co-founder of IndiaBonds.com, said that in the last five years from FY 2017-2018 to FY 2022-23, the overall bond market grew by 77 per cent in absolute terms. The government bond market led, showing a growth of 85 per cent, while the corporate bond market grew by 53 per cent. The slower growth in the corporate bond market can be attributed to the credit crisis that the country underwent from 2018-2021, which saw numerous corporate defaults, especially in the NBFC sector, as well as the metals/mining manufacturing sector.
Bond market outlook for 2024
Goenka further said, "It is anticipated that the RBI may start cutting rates from next year. This is because inflation is showing a declining trend globally, and also the US Fed, in its latest policy last week, indicated that they may see 2-3 rate cuts while remaining data-dependent."
He added that the interest rates market in India has, for some time, delinked from the US market. RBI last hiked rates in Feb 2023 and has been holding steady since then. The last reading of CPI showed a higher print as well, and domestic growth came in at a higher-than-expected 7.6 per cent for the previous quarter. Hence, "higher for longer" may continue to be the mantra in India.
But if data were to make RBI cut rates, we should see a tremendous rally in the bond market with shorter-end 3-5 years rates declining faster than rates for a longer tenor. "Given that we are close to or at the peak of interest rates in India, it is a very good time for individuals to invest in fixed-income products for achieving higher consistent returns in the next few years," Goenka said.