Bond market awakening in 2025: India catching up with global capital flows

Time of India

03-07-2025

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India's financial journey has undergone significant evolution over the past decade. Indian households, once heavily focused on fixed deposits, gold, and real estate, are now exploring a wider range of investment options. In recent years, equity markets have experienced growing acceptance, particularly with the rise of digital investment platforms and a corresponding increase in financial literacy.Now, bonds are stepping into the spotlight as Indian investors begin to appreciate the benefits of fixed-income products in a well-rounded portfolio. India's bond market is massive, valued at over $2.6 trillion, and plays a vital role in supporting government and corporate funding. Yet, the market has remained heavily dominated by institutions such as banks, insurance firms, and mutual funds. While corporate bond issuance has been growing—crossing ₹7.3 lakh crore in FY24—most of this has come from A-rated companies via private placements.While India's corporate debt market may seem sizeable, it represents just 18% of the country's GDP — a stark contrast to over 100% in the US and 70–80% in East Asian economies. This highlights the significant headroom for growth. Investment-grade corporate bonds in India offer returns of up to 14% with tenures as short as six months, making them an attractive avenue for both institutional and retail investors. Deepening this market is not just vital for private sector financing but also critical to sustaining long-term economic growth. A more robust corporate bond market will be key to unlocking private capital expenditure — something India will need to scale if it aims to become an $8 trillion economy in the coming years.Not only does the corporate bond market have room for expansion, but it also has considerable potential for developing depth by attracting a broader investor base through increased public offerings, rather than relying solely on private placements. Currently, private placements made up over 99 percent of corporate bond deals last year.Bond markets are deeply interlinked with interest rate movements. Higher interest rates in 2024 and tighter bank lending have prompted an increasing number of companies to seek funding through bond issuance. Still, 97% of these issuances fall into the top three credit rating categories: AAA, AA+, and AA. The credit rating concentration makes it difficult for smaller or lower-rated firms to raise funds in the market, limiting diversity and depth. Additionally, this also limits investor choices as high-yield investment-grade bond offerings with BBB ratings are limited.The implementation of the Insolvency and Bankruptcy Code (IBC) has played a crucial role in enhancing investor confidence by reducing credit spreads, particularly for non-financial firms. A stronger resolution process can continue to build trust, making it easier for a broader range of issuers to participate.While private placement and institutional investors dominate the corporate bond market in India, retail participation is increasing as accessibility improves, and confidence grows. Retail involvement in the bond market is gaining traction, albeit slowly. The number of retail bond transactions jumped from 1.2 lakh to more than 7.5 lakh over the past three years. Less than 5% of individual investors are currently active in this space. In contrast, developed countries have seen strong retail involvement for years.In the United States, over 2.5 million households invest directly in individual corporate bonds. In Europe and Japan, there is also a long-standing culture of individual participation in both government and corporate bonds.The gap between India and the rest of the world is substantial, yet it also presents a significant opportunity for growth. With more than 19 crore demat account holders in India, even a modest increase in bond investing could significantly boost market liquidity, depth, and resilience.Recent steps in the right direction include the rise of user-friendly SEBI-approved digital platforms like Jiraaf , simplified access to information about returns and credit risk, and smaller minimum investment sizes.The investment journey of Indian households mirrors the country's broader economic development. Initially, real estate was the go-to asset, viewed as stable and tangible. Gold followed as a culturally significant store of value. In the 1990s and 2000s, equities gained traction, followed by mutual funds (equity-heavy), thanks in part to reforms, dematerialisation, and the rise of systematic investment plans (SIPs).Now, bonds are starting to earn their place. Young India, mainly comprising first-time investors, formed the base of the equity investment boom over the last five years. The first-time equity investors are experiencing their first extended market volatility, only to realise that it is not always upwards and onwards for the equity markets. This financially savvy investor base realised the importance of stability and is now turning to bonds to anchor their volatile equity portfolios.Bonds offer predictable income and zero volatility compared to stocks, and a way to preserve capital while keeping pace with inflation. Bonds also carry relatively lower risk than most of the other asset classes, be it equity, real estate, or gold. With rising financial awareness, more Indians are exploring bonds not only for safety, but also for diversification and passive income. The heightened retail interest is expected to shape the next decade of bond investments in India.SEBI-registered digital platforms like Jiraaf have facilitated this shift. They provide access to corporate and government bonds with details on the borrower, returns, maturity period, minimum investment amount, and credit rating. Jiraaf also recently launched Bond Analyzer , a first-of-its-kind tool in India for bonds. This comprehensive tool is designed to empower investors with deeper insights into the country's fastest-growing bond market. These tools are helping close the information gap that previously kept retail investors away from fixed-income markets.Although the bond market is gaining momentum, several improvements are still necessary. First, financial education should continue to emphasise the role of bonds in diversified portfolios. Second, liquidity in the secondary market must improve to allow easier exits, even though bonds are not inherently designed for frequent buying and selling like stocks. Third, simplifying taxation for bond investments could increase their appeal. Finally, having a unified and streamlined infrastructure for transactions will help build investor confidence.The progress so far is promising. More investors are recognising the value of bonds as a key component of long-term financial planning. With supportive policies, improved digital tools, and ongoing market reforms, India's bond market could follow a trajectory like that of equities two decades ago.The outdated perception of bonds as dull, low-return instruments meant only for retirees is quickly giving way to a more informed and enthusiastic outlook. Today, Indian investors across all life stages — from ambitious 30-year-olds to financially prudent retirees — are recognising the strategic value of bonds in delivering stable income, managing risk, and adding meaningful diversification to their portfolios. A thriving bond market encourages more balanced portfolios, supports business growth, and enhances the financial system's resilience. As more individuals engage with this asset class, India moves closer to matching the investment behaviors seen in mature global markets.The transformation is underway. Bonds are no longer in the background; they're becoming a central part of India's financial story. The rise of bond investing offers fresh opportunities to participate in and shape the next chapter of India's economic development.This article is contributed by Vineet Agrawal, Co-founder, Jiraaf.The views and opinions expressed in the story are independent professional judgment of the experts and we do not take any responsibility for the accuracy of their views. The brand is solely liable for the correctness, reliability of the content and/or compliance of applicable laws. The above is non-editorial content and TIL does not guarantee, vouch or endorse any of it. Please take all steps necessary to ascertain that any information and content provided is correct, updated, and verified.