Liquidity still a challenge, but corporate bond market progressing with policy push: Hajra

Time of India

a day ago

India's
corporate bond market
is slowly but steadily finding its footing, even as
liquidity
challenges persist.
According to
Sujan Hajra
, Chief Economist and Executive Director at Anand Rathi Group, outstanding corporate bonds have crossed Rs 47 trillion as of June 2025—driven largely by high-rated corporates and financial institutions.
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While the
secondary market
continues to face depth and liquidity constraints, Hajra highlights that ongoing regulatory reforms, such as improved repo facilities and new
trading
platforms, are helping bridge the gaps.
Bonds Corner
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RBI auctions help bring average call rate closer to repo
The weighted average call rate remained below the repo rate. The Reserve Bank of India used variable rate repo and reverse-repo auctions. This was to align overnight rates with the policy gauge. In June, the WACR was closer to the lower end of the LAF corridor. The RBI prefers the overnight rate to align with the repo rate.
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'Progress may not be spectacular, but it's certainly meaningful,' he says, pointing to a maturing debt market framework backed by policy support. Edited Excerpts –
Q) Thanks for taking the time out. The second half of 2025 started on a volatile note. How are you looking at the
markets
? One of the reasons could be FIIs selling, which continues in July.
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A) Absolutely, volatility has been the defining feature as we enter the latter half of 2025. We've seen foreign institutional investors pull out nearly $3.4 billion from Indian equities in July alone, mainly in response to global factors like the uncertain US rate environment and a stronger dollar.
However, what's striking is the resilience provided by strong domestic flows, especially through SIPs. India's underlying economic fundamentals remain robust—GDP is still expected to grow by nearly 6.8% this year, according to the RBI—so while short-term swings may make certain classes of investors concerned, the long-term case to remain invested in Indian equities remains intact.
Q) IPOs have picked up recently, but EY report highlighted that Indian IPO activity in the first half of 2025 recorded 108 deals raising US$4.6b, demonstrating market resilience despite a 30% decline in transactions.
A) That's correct—the numbers tell an interesting story. Even with a 30% drop in the number of deals, raising $4.6 billion in the first half of 2025 signals that appetite for Indian equities remains healthy, especially for high-quality businesses.
Incidentally, the Indian market was in corrective mode between Dec'24 and Mar'25, which makes the feat even more impressive.
We are seeing investors become more discerning, rewarding firms with profitability and scale while being cautious about loss-making ventures. It's a sign of a maturing market, and India still ranks as one of the most active IPO markets globally.
Q) What is the initial sense you are picking up from the June quarter results, which have started to come out?
A) The early results this quarter have been mixed. On the positive side, sectors like private banks and capital goods are delivering double-digit profit growth.
Conversely, consumer staples and IT majors are under pressure, grappling with slower demand and squeezed margins. At the aggregate level nearly 50% Nifty 50 companies have already published results.
Whie the topline has been relatively subdued, 16-17% bottom line growth remains impressive. At the index level, results so far have been on the balance better than expected.
Q) Is the current equity market rally largely liquidity-driven, or are there sufficient earnings fundamentals to back the optimism?
A) It's a bit of both. There's no denying that the surge in domestic inflows—particularly through SIPs and DIIs—has helped cushion the markets.
But the fundamentals are not absent: Nifty 50 earnings have grown over 11% across the past four quarters, supported by strong performances in financials, autos, and infrastructure.
However, there are pockets—especially among small- and mid-caps—where valuations are running ahead of actual earnings, so a certain amount of caution is warranted.
Q) SIPs crossed Rs27K – what does it talk about the retail investor behaviour change?
A) Crossing the ₹27,000 crore mark in monthly SIP inflows – 9 times jump from early 2016 – is indeed a milestone. It shows that Indian retail investors are embracing a more disciplined, long-term approach to equity investing, moving beyond traditional preferences like gold or real estate.
This trend is supported by growing financial literacy and the ease of digital investing. It's also encouraging for market stability, as these steady domestic inflows can offset bouts of foreign selling.
Q) How is the corporate bond market shaping up here in India?
A) India's corporate bond market is gradually finding its feet. Outstanding bonds have crossed ₹47 trillion as of June 2025, with most issuance coming from highly rated corporates and financial institutions.
While liquidity in the secondary market still lags global standards, regulatory reforms—such as new trading platforms and improved repo facilities—are slowly addressing these gaps. Progress is steady, if not spectacular.
Q) Where are the pockets of opportunities coming from?
A) Much of the opportunity is emerging in sectors linked to domestic demand. Capital goods, infrastructure, select financials, and defence are all riding the wave of increased government and private capex.
Urban consumption discretionary remains strong, while rural recovery is catching up. Meanwhile, select public sector enterprises and manufacturers are poised to benefit from policy reforms and the global trend towards supply chain diversification.
Q) Where is the smart money moving?
A) The so-called 'smart money' is gravitating towards companies with robust balance sheets, steady cash flows, and strong market positioning.
There's a visible shift towards private sector banks, capital goods, certain public sector units with credible reform stories, and defence stocks.
At the same time, there's a clear note of caution when it comes to small caps and other overheated segments—profit-taking is evident where valuations look ahead of fundamentals.
Q) How should one play the small & midcap space?
A) Discipline is crucial here. Valuations in certain segments of small- and midcap stocks have moved well above their historical averages, making selectivity more important than ever.
Investors should focus on companies with a track record of earnings, strong governance, and decent liquidity. For most, a staggered approach using mutual funds may be the wisest route, with regular portfolio reviews to manage risk.