Retail investors start to warm up to corporate bonds post SEBI reforms: Grip's Nikhil Aggarwal

Economic Times

6 days ago

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India's fixed income landscape is undergoing a silent transformation. Once dominated by institutions and high-net-worth individuals, the corporate bond market is now beginning to attract the attention of retail investors — thanks in large part to recent regulatory reforms by SEBI.Nikhil Aggarwal, Founder & Group CEO of Grip, explains how measures such as the reduction in minimum ticket sizes, improved transparency, and digital access are driving wider participation.As traditional instruments like FDs lose their edge, retail investors are finally exploring corporate bonds for better yield, safety, and diversification. Edited Excerpts –A) The current decrease in interest rates is increasing the appeal of bond issuances for government entities and companies to raise debt.Corporates are increasingly turning to the bond market, with a higher preference for short-term bonds, as banks have been slow in passing on previous rate cuts.According to a primary database, corporations issued ₹61,200 crore in in up to five-year bonds in May 2025, which is about three times the amount of money raised for the same period in May 2024.Historically, periods of declining interest rates in India have seen a surge in bond issuances. For instance, in 2020-2021, when RBI cut rates aggressively, corporate bond issuances rose to record levels as issuers locked in lower borrowing costs.According to statistics from Prime Database, Indian companies raised ₹987 Bn ($11.68 billion) through bond sales in April 2025, attracted by the relative comfort of the local markets and alluring interest rates. That was the highest on record for the first month of a financial year.The market broadly anticipates that the Reserve Bank of India (RBI) will reduce policy rates further in the coming months, as inflation remains contained.Bond issuance is anticipated to be further stimulated by lower rates, which will also increase the value of existing bonds with greater yields, thereby benefiting investors through capital appreciation.A) Corporate bond issuance in India is expected to see a significant increase in the coming quarters, driven by a series of recent and anticipated rate cuts by the RBI.In its continuous attempts to boost economic recovery and revive credit demand, the RBI has enacted a number of repo rate cuts in 2025, including a 25-basis point cut in April that brought the rate down to 6.00%, following an earlier cut in February. This is lowering the borrowing costs for companies.As inflation cools and monetary policy turns accommodative, more corporates are tapping the bond market to refinance existing high-cost debt, fund capex and working capital needs. In FY25, companies raised over ₹9.9 Trillion through corporate bonds, reaching a record high.Furthermore, with strong liquidity and investor interest for higher-yielding products, market circumstances may be quite supportive of increased primary bond activity in the coming quarters.A) With the recent interest rate cuts, the short-term secured bonds have grown in popularity among investors. Short-term bonds expiring within five years accounted for more than half of the new bond-securitised debt issued in May, up from one-third in April.5 Following factors can be attributed driving this trend:a. Rate cut anticipation: Companies are opting for shorter maturity bonds to avoid locking in at current rates in the anticipation of rate cuts when cheaper financing could be available.b. Liquidity Infusion: Since late 2024, the RBI's actions to increase banking system liquidity have primarily benefited non-banking financial companies (NBFCs), allowing them to borrow more through short-term bonds.c. Yield Advantage: Short-term secured bonds now yield much more (up to 80 basis points) than similar government securities, making them appealing to businesses and investors.d. Hedging Against Uncertainty: As the long-term interest rate trajectory and macroeconomic environment remain unpredictable, issuers and investors choose short-term instruments.e. Flexible Funding: Short-term bonds provide for quick refinancing or bridge funding without tying in money for an extended period.A) Till 2023 this market saw limited participation from retail investors with 99.5% of the market being driven by institutional investors. The primary barrier being a minimum investment amount of INR 10 lakhs.While institutional investors still dominate the short-term corporate bond space, retail participation is gradually increasing. Recent regulatory changes by SEBI in 2023 have transformed the fixed income investment landscape, making it far more accessible and attractive for retail investors.Note: Excluding transaction sizes greater than 50L (which could indicatively fall into institutional transactions)• Low Minimum Investment Amount: Minimum investment thresholds were significantly reduced, with most listed bonds now accessible for ₹10,000 with some bonds also available at ₹1,000, encouraging broader participation.• Greater Transparency: Issuers are now subject to stricter credit rating and disclosure norms, empowering investors to make well-informed decisions using independent reports.• Secure Settlements: All investments are enabled only via the stock exchange with T+1 settlement in the clients' demat accounts.• Enhanced Liquidity for Clients: Introduction of demat settlements via exchanges has increased liquidity, allowing investors to exit investments more easily.• Tax Incentives: TDS on bonds has been exempted up to ₹10,000 annually per issuer.A) The green bond market has experienced significant growth in the last several years, with positive year-over-year growth every year since 20118. In 2024, globally, the green bonds market achieves record levels of issuance and outperformed the conventional bond market by close to 2%.In India, the momentum picked up after SEBI issued green bond guidelines in 2017. The Government of India began issuing Sovereign Green Bonds (SGrBs) in FY 2022-23, raising a total of ₹57,697 crore through FY 2024-25.Indian mutual funds, banks, and insurance companies are increasingly integrating ESG considerations into their portfolios, driven by regulatory encouragement and global best practices.Investors are also drawn by the dual promise of measurable social, environmental impact and financial stability provided by SEBI's strict disclosure and verification requirements.Several renewable energy leaders (Azure Power, ReNew, Adani Green, etc.) have issued green bonds, and others are entering the sustainability bond space.The recent introduction of SEBI's ESG and sustainability-linked bond framework is expected to unlock new capital-raising opportunities across a range of sectors.The following categories of issuers are especially well-positioned to benefit from and drive this evolving market:a. Infrastructure and Construction: Companies engaged in large-scale infrastructure projects such as urban transport systems, highways, smart cities, water supply, and sanitation are strong candidates for ESG or sustainability-linked bond issuances.b. Renewable Energy and Clean Technology: Firms operating in solar, wind, hydro, bioenergy, energy storage, and electric mobility stand to benefit the most. These sectors directly contribute to India's Nationally Determined Contributions (NDCs) and net-zero targets, making them ideal for green bond issuance.c. Affordable Housing, Healthcare, and Social Infrastructure: Issuers involved in building affordable housing, healthcare facilities, sanitation, education infrastructure, and gender-focused programs are natural fits for social bonds and sustainability-linked instruments.d. Financial Services (BFSI): Banks and non-banking financial companies with established ESG policies are well-positioned to issue ESG bonds or serve as intermediaries, channeling funds to underlying green and social projects.e. Large Listed Corporates: Publicly listed companies already complying with SEBI's Business Responsibility and Sustainability Reporting (BRSR) requirements particularly those in the top 1,000 listed entities are better equipped to meet the data, disclosure, and governance demands of ESG bonds.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)