Corporate bonds to gain as RBI easing cycle nears, says Suresh Darak of Bondbazaar

Time of India

a day ago

As India inches closer to a potential monetary easing cycle, the corporate bond market is poised for renewed momentum.
According to Suresh Darak, Founder of Bondbazaar, expectations of rate cuts in late 2025 or early 2026 could significantly boost corporate bond issuance, as companies look to lock in lower borrowing costs.
Falling yields on government securities are also likely to drive investor appetite toward high-grade
corporate bonds
, improving pricing and deepening market participation.
In an exclusive conversation, Darak outlines the emerging trends shaping India's bond landscape—from the rise in short-term issuances and evolving retail participation to the growing appeal of ESG bonds. Edited Excerpts –
Q) We have already seen 100 bps rate cut from the RBI. Historically, how does a rate cut cycle influence corporate bond issuance in India?
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A) Rate cut cycles have historically had a positive impact on corporate bond issuance in India. As the RBI lowers policy rates, borrowing costs for corporates reduce, prompting companies to tap the bond market for refinancing or expansion at more favourable terms.
Simultaneously, falling yields on government securities encourage institutional investors to seek higher returns in AAA rated corporate bonds (led by increase in spread between Gsec and AAA rated bonds), boosting demand and improving pricing for issuers.
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Many corporates also use this period to shift from short-term to longer-tenure borrowings. Additionally, investors holding long-dated G-Secs or high-grade bonds often benefit from capital gains in the secondary market as yields fall.
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Q) With rate cuts expected, do you foresee a significant uptick in corporate bond issuance in the coming quarters?
A) While a rate cut in the upcoming August policy is unlikely, expectations are building for easing to begin in late 2025 or early 2026.
Once monetary easing begins, it is likely to trigger a significant uptick in corporate bond issuance, as issuers seek to lock in lower borrowing costs.
The shift in interest rate expectations will also improve risk appetite among investors, further supporting issuance volumes.
Q) There's been a pick-up in
short-term corporate bond issuance
recently. What's driving this trend?
A) Short-term corporate bond issuance (up to 5 years maturity) has seen a marked rise, largely driven by interest rate expectations and improving liquidity conditions. In May 2025 alone, Indian companies raised ₹61,200 crore via five-year bonds—nearly a threefold jump from ₹21,400 crore in May 2024.
Mutual fund allocations to 1–5 year bonds have grown significantly, driven by better system liquidity and attractive spreads of 30–40 basis points over comparable alternatives. Issuers are also preferring shorter tenors amid uncertainty around the timing and quantum of rate cuts.
Q) Are retail investors showing interest in short-term corporate bonds or is demand largely institutional?
A) Retail participation in corporate bonds has increased meaningfully over the past two years, aided by SEBI's regulatory reforms such as enhanced market accessibility to increase transparency, lowering of Minimum Investment Amount (i.e. Face Value from Rs. 10 Lacs to now Rs. 1 Lacs / Rs. 10,000 / Rs. 1,000) have opened the door for more individual retail investors.
Despite this progress, retail investors still account for less than 2% of the overall corporate bond market and institutional investors continue to dominate the market.
Q) What's driving the growing popularity of these instruments? What sectors are leading India's ESG bond issuance?
A) ESG bonds are swiftly transitioning from a niche product to a mainstream funding tool in India. This shift is driven by growing investor focus on sustainable finance, regulatory clarity from SEBI, and the global push for decarbonisation. SEBI's updated ESG framework has enhanced transparency, enabling issuers to attract a broader and more diverse investor base, often at more competitive pricing.
In FY 2025, ESG bond issuance in India stood at ₹8,743 crore across 27 deals, with most issues witnessing strong oversubscription. The renewable energy sector led the charge, with active issuers like ReNew, IREDA, and Avaada. Infrastructure giant L&T raised ₹500 crore through India's first listed sustainability-linked bond (SLB), while the Pimpri Chinchwad Municipal Corporation's green bond issuance of ₹100 crores received 5.13× bids.
Recently, Vertis Infrastructure Trust (formerly known as Highways Infrastructure Trust) has successfully raised ₹900 crore through a Sustainability Linked Bond (SLB), marking the largest SLB issuance by an Indian InvIT to date.
With growing demand, pricing benefits, and widening sectoral participation, ESG bonds are becoming an increasingly important capital-raising tool for companies focused on sustainable and future-ready business models.