Smart bond investing: Strategies, risks, and market outlook from Grip Invest’s Nikhil Aggarwal

The Indian bond market is a rapidly growing segment within the country’s financial landscape. With over $2.6 trillion in valuation, the bond market has become a significant avenue for investments, witnessing growing participation from retail investors.

In an interaction with Business Today, Nikhil Aggarwal, Founder and Group CEO of Grip Invest, shared his expert insights on the opportunities and risks associated with bond investments, offers practical advice on portfolio construction, and explains how senior citizens can achieve higher returns with lower risk. He also delves into the macroeconomic outlook for the next year, addressing key factors such as inflation, global uncertainties, and their impact on both equity and bond markets.

This conversation offers valuable perspectives for investors looking to navigate India’s dynamic bond ecosystem while staying prepared for the challenges ahead.

Edited excerpts

Q) What is the current size of the Indian bond market, and what are its growth prospects?

The Indian bond market has truly come into its own, currently valued at an impressive $2.6 trillion. What’s particularly exciting is the global recognition it has garnered. JPMorgan’s decision to include Indian bonds in their index, starting with a 1% allocation in June 2024 and increasing to 10% by April 2025, is expected to attract $25-30 billion in foreign investments. The democratization of bond investing is also noteworthy. We’re witnessing 30% month-on-month growth in new bond buyers and a remarkable 200% year-over-year increase in retail participation, driven largely by young investors across 3,000+ pin codes. This proves that the market has truly achieved nationwide reach.

Q) What are the key risks associated with bond investments?

While bonds are generally considered safer than stocks, they are not entirely risk-free. The primary risk is default risk, where a company might struggle to make interest payments or repay the principal amount. Another significant factor is interest rate risk, which particularly affects longer-term bonds—it’s essentially the cost of locking in your money for extended periods. Liquidity risk used to be a larger concern, but thanks to new Online Bond Platform Provider (OBPP) platforms and RFQ-NSE integration, it has become much more manageable.

Q) What advice would you give new investors on constructing a bond portfolio?

Constructing a bond portfolio today offers multiple routes. Investors can purchase bonds directly during issuance, trade them in the secondary market, or opt for professionally managed options like bond funds and ETFs. Successful investors typically diversify their investments across 2-3 different bond options. The key is to strategically consider maturity periods and issuer quality. Look for financially robust companies with strong credit ratings and explore theme-based investing to align with your financial goals.

Q) How can senior citizens earn higher returns than bank FDs with low risk?

Bonds now offer returns ranging from 10-14% through regulated platforms, making them a compelling option for retirement income. With a lowered entry barrier—investments can now start at just Rs 10,000, down from the previous Rs 1 lakh—bonds have become more accessible. Senior citizens can focus on bonds with lower risk, such as those rated AA or AAA, and opt for bonds that provide monthly returns to meet their expenses. SEBI’s introduction of OBPP licensing has further enhanced security and transparency in bond investing. Additionally, with real-time price quotes and specialized bond baskets, investors can spread their investments wisely, creating a customized fixed-income portfolio.

Q) What is the market outlook for the next year regarding the Indian economy and bond markets?

The next 6-12 months are expected to be volatile for the Indian economy. Contrary to expectations, inflation rates have remained elevated, prompting the RBI to hold back on repo rate cuts. GDP growth numbers have also been lower than anticipated, leading to reduced FY25 growth projections. On the global front, factors like the change in leadership in the US and ongoing geopolitical tensions are likely to contribute to uncertainties surrounding trade, tariffs, and international monetary policies. The recent outflow of capital from FIIs over the past six months further underscores this uncertainty.

For the equity market, a critical determinant will be the ability of Indian corporates to meet earnings expectations. In the bond market, similar uncertainties will play a role. Since many bond issuers are NBFCs, recent RBI guidance on rising stress in loans is likely to impact bond pricing, with smaller issuers experiencing a rise in yields. At the same time, tight liquidity in the economy is expected to drive an increase in bond issuance volumes as banks and NBFCs tap into broader pools of capital to meet their requirements.