Determinants of Bond Yield in the Indian Corporate Bond Market

Abstract

Every entity, be it corporate, involved in either manufacturing activity or providing services, big or small; be it government either Central or State, Municipal Corporation; they require capital either by equity or by debt. It is the financial markets that channelize the funds from surplus units to deficit units. The Indian Equity market has world class infrastructure and at par with the world equity market in terms of infrastructure, trading mechanism, depth, liquidity and market capitalization. However, the Indian debt market especially the corporate bond market is not as developed as Indian equity market. Debt taken by corporate for their growth and expansion is called corporate debt. The corporate debt of India Incorporation is 56% of GDP, which includes credit from all sectors to private non-financial sector; out of this, corporate debt securities contributes 8% share of total non-financial corporate debt1. Although market for corporate bonds in India in terms of outstanding value of corporate bonds has tripled from and#8377;10.5 trillion in 2012 to and#8377;30.7 trillion in 2019 and is one of the significant components of the Indian financial markets which can support infrastructure growth of a country, and yet it is under-developed as outstanding value of corporate bonds as a percentage of GDP has increased from 12% in 2012 to 16.1% in 2019. newline