#NISMMasterclass 31:India needs a vibrant bond market to fund its infrastructure buildout|Nipa Sheth

Added: 2026-06-02

[00:00:13]Welcome to the NISM master class. I am your host Sashi Krishna.

[00:00:19]As part of our purpose at NISLM uh which is capacity building for the securities market ecosystem we sit down with the gurus of the securities market to gain from their insights and my guest today is Nepa set and uh Nepa is the director and founder of the trust group uh which is a fullervice financial services house and she is al this the the trust group is also a leader in the Indian bond uh market and I think Nepa has over 25 years experience uh in the bond markets in India and you know in her career she has won many awards uh especially as the best uh bond house in India and uh I think she's also currently the chairperson of uh the national council for corporate bonds markets in ASOP. Uh so welcome to this uh show Neba and uh let me start off with asking you you know a very fundamental question why is it important to have a vibrant and well-developed corporate bond market for the last three four decades we've been talking about you know the importance of a vibrant corporate bond market in India and uh how does a corporate bond market help channelize uh capital uh uh and household savings into uh you know the productive sectors of the economy.

[00:01:48]>> Okay. So first of all thank you Shashi to have me here. I think it's really a privilege to be part of this and uh of course bond market has been a long journey and as you know that you know trust group has successfully uh seen the almost the three decades today in terms of how the bond markets are changing right from physical format to demand formats and lot of volumes uh however I think there's a lot to long road to go uh I as you mentioned that you know when we looking at any country which is looking at development and you know all of us are looking at maybe a wix at Bharat by 2047 and if not 2047 maybe few years later when we are going through this entire development it is very important to have country to physical infrastructure and also the other infrastructure by which you create jobs you create uh you know fundamental comfort for the individuals and therefore however important is the equity and the capital market debt Market plays a very very important role because in that terms of growth that productive money which goes for savings and building of infrastructure is very important and debt market plays an extremely important play role in this.

[00:03:05]So and as as we have the corporate and the household saving which gets channelized into different parts which could be equity, gold, real estate I think then becomes an significantly important part and especially now when we having real interest rates it does protect people against inflation has a very safe saving as the same time we can have the country's infrastructure building up.

[00:03:28]>> So re let me take you on two of those issues rather one is the volume and second is the need for capital. Yeah.

[00:03:34]>> So if you look at the total outstanding issuances most definitely they have been rising. So you know uh 10 years back they were around 17.5 lakh crores. Today they something like 53.6 lakh crores.

[00:03:47]>> So there's been a huge amount of uh sort of uh capital that's being raised from the debt markets through the corporate debt. But if you look at it as a percentage of GDP it's around 15% of GDP. And clearly most countries that have seen rapid development is a much larger number. Uh like the second thing is that you know these numbers seem to suggest that we are seeing a gradual shift towards marketbased financing against traditionally what was you know uh bank financing which was used for most of the capital or debt capital that was needed to drive the economy. Do you see a stage where you know market based financing becomes as big as say bank credit in India?

[00:04:34]>> Uh yeah so some very important data point today we see the bank credit at around 350 to 320 lakh >> out of that I think the retail loans would be around 1605 or abbreviation. So that means the corporate loan to the from the banking sector is around 55 to 60 lakh cr which is similar to the bond corporate bond market. I'm taking the government debt and the state government debt out of this right.

[00:05:04]>> So which is similar now slowly and steadily over the last 5 years the incremental corporate borrowing from the market space is more than borrowing from the banking sector.

[00:05:16]>> Is that so? Today >> it is that today I mean if you see last 2 three years the actual bank you know corporates borrowing from the debt market >> has been slightly more than the banking and therefore now we have come to a number because banks also in general have focused a lot towards retail lending in last few years >> right >> and we have come to an equation where both the numbers are almost same from here we definitely see that the more and more corporates will come to the bond market Because the rates are flexible, there are different instruments maturity wise. You can have your ALM mismmet. So we definitely see that changing. If you see the leverage of corporate, I think it is multi-deade low. We have come with a high around one and a half to two and a half which was in 2015 today to almost less than one time leverage. So all corporates and financials are today sitting with very very strong balance sheets. Most of the balance sheets have been cleaned up. uh and I think you are at a stage where you can take off into a higher leverage game and the debt capital market is allowing that option at least to the primary issuers to probably have all of this. So we very clearly see that more and more corporate and infrastructure projects which are already operational more municipals more state government bodies will come to corporate bond market for you know a big size coming from here and today you become equal and I totally agree with you that India is at 15% China's at 150%. So you know if I have to compare the number the bond market should go 10 times from here but even if we don't go anywhere nearby I think we are at a stage where our infrastructure and manufacturing boom we are hoping is just taking off and therefore a vibrant debt market will become a need of an hour whether it's a merger and acquisitions whether it is infrastructure which is done uh you know and operational rows which can come into the uh major pipeline going to be very very important. So that is a very interesting insight saying that if you sort of strip away the retail lending that banks do today the marketbased financing through corporate bonds almost the same as you know bank credit to uh industry. uh but you know another question is that who is this credit available to at least the market based financing because today what happens is AAA bonds you know almost dominate the entire issuances that we see in the corporate bond market and you know firms that are doublea rated at less I think are less than 15% of the total issuances today and if you compare this to markets like the US or Europe you know close to 90% % of the issuances are A-rated and below right so uh two questions I had out there from a demand side why is there this preference for higher rated bonds and very limited demand for lower rated bonds but as important from the issuer side is it that lower rated issuers avoid the bond market and prefer bank loans because you know bank loans are more flexible in today's context and you know they require fewer disclosures which I think becomes more difficult for lower rated companies.

[00:08:40]>> Uh see I think this entire question has few parts to it. First I will come from the bond market investor. The bond market is dominated by institutional investor. Uh the first being you know banks, insurance company, provident and pension funds, mutual funds, other institutions and retail and individual.

[00:08:59]out of the total number I don't think more than 90% is institutional driven less than 10% maybe close to 5% will be individual driven most of them are also governed by their internal guidelines as you know uh you know pensions or insurance where you have a deep understanding >> things they can invest in >> they are all only into double A and above even mutual funds to a very great extent of the schemes is also double A and above hence their ability to invest in less than double delay is very minimal. If you see the rating profile of the entire rated universe, you will be close to 25 26,000 cr.

[00:09:38]More than 50% would be less than double B.

[00:09:42]>> So more than 12,000 companies would be less than double B and also if you see the upper end there will be only 1500 companies which will be double A number above.

[00:09:52]>> So obviously that universe is small.

[00:09:55]However, the acceptance in a big market for less than double A is very rare because everybody is restricted. Oh, I cannot buy below AA though you have conviction in the company. So that takes away. However, slowly and steadily that 15% space of nonA has become almost 30% plus.

[00:10:16]We are also seeing that private credit Aif foreign institutions have come into a higher yielding segment which is maybe 15 to 18% and we have seen significant size even in a triple D bond. I mean we've seen a single bond issuance of 18,000 20,000 crores. So that has changed the market. The second piece what we saw earlier is that the bank lending to less than double A entity the spread which they charge is much lesser than what bond market used to charge. So if a A minus company will go to you know bank they will charge 100 bits over AAA whereas a bond market may charge you 350 bits over AAA.

[00:10:57]>> So bank credit is actually cheaper there >> cheaper for them. uh it is not just the disclosure it is also the pure uh you know cost of funding and you know I think as we see more individuals coming to the market as we see more openness we see lesser rated issues number of issuance going up and also the yields going down on that segment at least the NBFCs have been able to access that market well >> okay so you know similarly uh because institutional investors dominate this space. Most of the issuances have been private placements, right? In fact, uh if you look at the last year, almost 9 lakh crores of private placements took place. Uh just about 2% of the total total bond issuances were in the public uh space and that's primarily because of this issue that it is institutional investors who dominate this uh space. So how do we you know encourage corporates to you know move also into the public space.

[00:11:59]>> See there are two three issues here. One the process is much longer.

[00:12:03]>> So you know you go through a process of approval with you know MCA and all of that as against a private placement that once the resolution is done rating is in place it's a oneweek process as against a much longer process. uh disclosure level to my mind SEBI now almost has similar disclosure and compliance. The issue is time to the market and expense because when I go through a public issue route a distribution does take away a significant chunk of the entire distribution fees and therefore you know any rate sensitive corporate would be more not very willing unless you know one is looking at a compulsion of development of a market and which can reach out to more people. That is the reason we see lesser issuance only the issuer. I mean significantly the people who will go to the public issue market will be NBSC who are looking at a different it's a raw material for them.

[00:12:56]So they would want different channels to be giving them money and therefore retail is important for them not only from a rate perspective but a blended you know source of credit. So over a period of time we have seen one or two PSUs coming in the market for a public issue or otherwise it is you know generally uh you know public uh NBFCs who are looking at a differential resources for most of other guys institutional money is very simple to take and much easier to take and the process also is very fairly transparent and well defined by sebi so I think that is the reason >> so you you still think that going forward also it will be primarily the NBFCs who will be accessing the public markets And you know the non MBFC's manufacturing companies would continue to prefer the privately placed >> at least in a near term at least in a near term I definitely see two to three years unless we see the change of how issuance happen can I give access to more investor in a public private placement kind of environment >> right uh so you talking about u you know the demand side I just had a question out there that there are not too many instruments available to manage risk in the ecosystem today. Uh so if you have a corporate bond portfolio and you needed to you know hedge interest rates or you needed to go in for an instrument like a swap or a credit derivative those instruments are just not available out there which is one of the reasons why you know a lot of people feel a gap uh in the you know in constructing our portfolio. So if somebody needed to you know hedge interest rate risks or hedge credit risks in India how should how would that institution investor go about doing that?

[00:14:39]>> See the issue is the depth on any of these instruments. So we have seen regulator sebi finance ministry as well as RBI everybody has tried their best to bring out some of these instruments whether we talk about a credit default instrument whether we talk about interest rate futures. So there is a framework. However, fortunately unfortunately you know the restrictions because again it's an institutionalled market. Everybody also have to have their own internal guidelines to do this. uh some of them do require a significant amount of capital for them to do those activities and I think somewhere a full access to every market participant is missing in some of the so what happens is when I come as a individual or I come as a corporate house I my need is higher than the institutional need because you know I want to hedge it because I'm new I don't understand full risk whereas the excess is slightly limited and even institutions have their internal you know uh guidelines to be done though I think in recent times a lot of new changes have come in and I think in couple of years we will see these taking off in a very different manner.

[00:15:54]>> So you talk about capital being a constraint. So just a thought that occurred to me is that uh you know say banks and other lenders you know they can free up a lot of capital from their balance sheets uh you know lower their financing course etc by securitization right and you know we've had mod mortgage back securities asset back securities in the market for a very very long time but that's not a product that has you know sort of taken off and not too many people have used that route to free up uh capital to do a a lot of um other things uh you know and even yesterday uh if I remember uh the regulator has come out with you know sort of harmonizing the entire securitization process with what uh you know the RBI has by allowing single asset securitization so a lot of work is being done in terms of the framework but how do you see securitized assets taking off because this can free up a lot of capital for more productive purposes isn't it for sure. However, look at two fundamental things. One is the real estate affordability in the country. Uh you know though we are moving towards a very high real uh real estate prices. If you see people at affordable housing range, the number of people who can afford real estate are still not many.

[00:17:16]So the mortgage boom as we would want to have it is not there. So I am growing almost at the size at which I can expand my balance sheet. So if you see a non-food credit today is anywhere between 13 to 15% which is equivalent to my deposit ratio. So I do not have a compulsion to free up my capital. So unless I see that that is the first part you know that I need a capital need to do this for for which we need a far higher growth on the fundamental mortgage lending which I think uh you know again there is a lot of effort on affordable housing swaps but as it happens we will see the results happening there. Second, of course, harmonizing of the you know guidelines need to be done and as you can see over the last three four years there is a lot of uh discussion between SEBI and RBI to ensure that there is a smooth path for this. But if you ask me today if any of the lenders do they really want to >> do they need that capital?

[00:18:20]>> Do they need that capital? You see in last one year a lot of gold uh you know lending companies will come to do secretization >> because they were growing at a rate which was not sustainable with the kind of sort of to sustain that >> they were they were growing at a you know more than 50%. So they had to do that whereas I think mortgage will need that fundamental piece to do that but I think we've again got some pieces right in terms of how do I actually take that market to the credit market we've seen mutual funds participating we've seen some of the bigger uh housing uh company which now got you know aligned with the bank has done some sizable issues on that and there is a good acceptance. So you do see that market uh you know having a future in >> absolutely market has a infrastructure which is there to do it. I think at the right time of growth people will start looking at it very closely.

[00:19:12]>> So let me shift to the secondary market because you did say that uh a little while back when we were chatting that secondary market uh liquidity is something that you know we seriously need to pay attention to. uh and I mean I think we all admit that the secondary market for corporate bonds is still very shallow in India and the average daily volume even though it's increased over the last couple of years will be 5,000 6,000 crores if not more than that and again as you said I mean it's mainly institutional investors and these institutional investors are in you know AAA rated securities so again the entire secondary market is in those AAA rated securities so And secondly, if it's institutional investors, they have a buy and hold strategy. So most of these people, the pension funds will buy it and then you know forget about it till maturity. So what needs to be done to improve secondary market liquidity because unless we have more secondary market liquidity, you know, things like price discovery etc become, you know, aren't very efficient.

[00:20:15]>> Absolutely.

[00:20:17]So you know we we run a country which has probably one of the most efficient equity market systems. Uh debt is different because debt of course unlike an equity uh which is one reliance and one script >> right >> one reliance people can have you know 20 uh different bonds issuance with different terms. However, I think the most important part was to get the information correct and I think kudos to Sebie for what they've done over three years in terms of transparency in terms of understanding the information of any new issuance which has come. So I think over the last five years at least whosoever has issued at least everything in terms of covenant and everything is covered and is publicly seen. Second in terms of how many people can access to the market and I think that's a fundamental issue which needs to get corrected. Today you go to equity markets you trade on exchange okay uh whether you are an individual whether you are an HNI company institution everybody goes on one thing in debt market though the settlements happen over there you need not go through the same channel whether it's a broker or it's a uh exchange I feel having a common platform which is accessible to all we have a very institutional approach to the whole thing. Slowly we are keeping the retail part but what we are you know probably missing out is the HNI and corporates who can also play a very important role and for them to see we've come with an RFQ system where people can see the rates but a seamless settlement system along with you know rates which people can see will make a big difference on how a secondary market >> so you're saying trading infrastructure and settlement infrastructure need to be standardized And >> it can be it can it is standardized and uniform. I think excess of that standardized and uniform system for corporates and individuals will be very important because they are generally the people who come on the other side of the market when there are you know tight turns like a pension. Second I also feel the liquidity against these instruments.

[00:22:29]Today an individual or other people will move towards either bank or liquid fund to bond market. when I know either I can sell or I can get some funding against that and I think liquidity becomes a father of every market as you say and the moment we solve it we have tried to do this for repo uh we have got MC repo for a higher rated instrument but again excess is limited to regulated entities so I think once that changes it just changes the entire product portfolio and market participants >> so taking on this theme of liquidity. I think one of the biggest drivers of liquidity in any market are the market makers. Correct? And there are almost no market makers available in the corporate bond market in India today. In fact, even if they are available, first of all, they you know they're not capitalized. They don't have enough capital to take the kind of risk. You know, all of the you know entities in India are very happy to take on the role of arrangers. But nobody's happy to take on the role of a market maker. So why do you think that has happened and what needs to be done to get more market making happening in this uh corporate bond?

[00:23:44]>> Uh see one you know if you see the arrangers there are some bankled arrangers uh there are some PDS and there are merchant bankers three categories. So if I say the banks, I think banks focus has moved on to retail and retail lending and they've become very sizable to be doing either a broking or a DCM market making activity.

[00:24:02]From an overall perspective, very few banks would be interested in probably uh you know engaging in that activity. Uh PD's I think primary focus remain the rate driven you know government security. it leaves with a very small set of arrangers and some of those arrangers may not be an active secondary market participant as well except for that book. So I think there is a scope there is a scope for many more intermediaries to come. The moment you have the entire ecosystem going through intermediaries and through exchange a lot more well capitalized intermediaries will come into this market today they are absent. It obviously has advantage for few players because you can be market leaders.

[00:24:44]>> Exactly. But but I I know that there is a very clearly a space for more intermediaries to put a big market. Just give you an example that today every financial product penetration. We are talking about now in 10 cr, 20 cr, 30 cror whether we talking about demat account, equity holders, mutual fund holders at least till the end of last year I would say there were not more than five six lakhs bond holders in the country.

[00:25:13]institutional retail everything >> even with the rise of OBP platform or you know retail materialization of course it's moving fast but I don't think we are still talking about more than 75% of total named holders having bought so there is a long way to go and there is a lot of uh you know peace which can move in >> so talking about the uh uh trading infrastructure and the settlement infrastructure this uh request for court mechanism RFQ mechanism which Sebi brought in I think in 2020. It was primarily brought in with the objective of shifting the corporate bond trading you know from what was traditionally the overthe-counter market into an electronic trading. So that was the attempt right. So how has this initiative actually impacted uh bond trading because from whatever I heard you say there is still some uh you know way to go in terms of electronic trading and having a platform for bond trading.

[00:26:13]>> So it's definitely changed from where we were. There are people who would put quotes in ensured that people actually use RFQ uh for quotation but again access is very important. we are giving uh access to now of course individuals can get access if they are you know registered through OBP but that's a small set of numbers so uh we see RFQ there are two modules there one to many one to one we still see a little more one to one but I think any platform you know and RFQ can be probably ultimately widely distributed where everything is you know information is given to larger audience at large will work well and I think that's the effort towards that which I think can work well.

[00:27:00]>> So you've been talking about the OBPP platform and uh you know it has been partially successful in making the bond markets accessible to retail investors.

[00:27:12]Uh in fact uh there is something in the papers today which says that the OBPP platform providers may extend their services to IFSA the gift city also. uh so we're making it accessible to retail investors. But I had a slightly different question saying that accessibility is one thing but the retail investor also needs to be aware of you know what exactly he or she is getting into when she he or she is investing into a bond. So just by providing you know an OBP BP platform will we be solving this problem for retail investors? At least it's a great beginning and I think uh from the beginning SEBI has looked at it very well in terms of ensuring that the information available to the retail investor it's in best practice. So you know they did start looking at this because given the number was very small and can become very large. I think there are regulations which came in.

[00:28:08]>> So if I may interrupt you if you get on to the OBP platform and you want to get some information on a particular bond that is available on the platform to the investor. uh to >> does he need to go somewhere else to find that information?

[00:28:21]>> So the there are members of OBP so and all of them will have their own sites and when you go to those sites there are formats in which you have to give the information. So first of all they can do only listed bonds. So the you know that itself is very big because when you can do listed bonds a lot of information is available. So the rating and the rational and all of that is and yield all of them is actually displayed. They definitely have to deal through RFQ. So there is a you know good amount of transparency in terms of settlement in terms of you know what they're getting into but of course you know at the end of it there are credit risk but credit rating rational is available so it's a well displayed information outlet in that model >> okay and they can access that information from each of the OBP providers and then go on to the platform to trade. or no the plat OBP is an association >> of the traders or fixed income who has an online presence on this. So this is like a MP >> okay and the members of M as they have mutual funds there are members of OBP who will have their uh different terminals and you can >> and all of them have are required to give standardized disclosures. Yeah, there are disclosures which has been said by semi that you have to go with those.

[00:29:36]>> Fair enough. So access becomes easier.

[00:29:39]Uh it is still up to the retail investor to go and you know >> and each of them will have a different product because it is uh you know unlike an equity markets as I told you the offerings and the settlements happen through a different system. So a OBP and two OBP can have completely different bonds. they they both may be listed but everything is not available on all platforms at all point of time. Yeah.

[00:30:05]>> So there are several other regulatory changes that you know SEBI has introduced over the last couple of years uh including you know they have sort of limited the I mean issuers could have a maximum of I think 14 ISIS maturing in any single financial year trying to reduce the complication making choice much simpler for people. Similarly, I think uh listing fees for debt securities has been reduced. They have uh introduced optional liquid optional liquidity uh window mechanism. Uh you know they've set up the AMC repo clearing corporation. So which of these have made a significant impact on I mean all of them have made an impact on the bond market but which do you think are the ones that have you know made a significant impact uh uh on bond on the bond markets as a whole.

[00:30:57]>> So you know I think overall together it's a significant impact. You've done EBP you've done a listing uh guidelines you reduce the fees you made a lot of standardization from a primary perspective it's become a great engine. Okay, lot of corporates for them to issue it's become simple.

[00:31:17]It's easier. The bigger corporates do not even have to do a lot of things. PFC can just upload issue and you know go to the entire market.

[00:31:24]>> So you have a single uh document which now can be used for >> absolutely repo platform is great as a platform.

[00:31:33]However, I genuinely feel that a liquidity depth in a secondary market can make a big change for number of more people to come in. AMC repo is of course restricted to regulated entities which is there as per RBI guidelines. I think the moment today the banks may not want to borrow against the bonds but as an individual or as a company I may want to borrow. I think the moment we bring that those participants will rush to come in otherwise bank deposit is an easy way out you know I might get 2% less but I can get my money whenever I want so that piece if that changes I think will bring any form of liquidity whether it's repo or I think will make a big change to the debt market.

[00:32:18]>> So you were mentioning uh RBI also sort of bringing about a lot of changes in their approach to the corporate bond market. In fact, uh RBI now uh insists that large corporates at least uh raise at least 25% of their incremental borrowing through the corporate bond market. Has that led to larger issuances happening in the corporate bond market?

[00:32:42]>> It has. It has. You've seen bigger corporates accessing the market seamlessly and I think the uh a lot of companies who would not otherwise think of bond market as an option has started.

[00:32:54]So most of these large corporates would go to the bank for their working capital requirements and would come for all their capital requirements to the corporate bond market. Is is that how they structure their borrowings?

[00:33:06]>> No, I think at least the AAA uh double A plus and above I think probably also look at fixed floating tenure they're looking at but they are coming with a lot of ease in the uh markets even for the mergers and acquisitions. It's a route which is preferred because banks typically did not so far till the last policy has changed were not allowed to lend against mergers and acquisitions.

[00:33:28]So that also became a very big part of the entire bond borrowing program. Okay.

[00:33:32]So a lot of it is also for these acquisitions and uh those kind of programs that they sort of uh run. You know systemic risk has already has always been something that's been sort of worrying you know at least investors in the bond market. We've seen incidents in the past that have caused you know this kind of an anxiety and I think as a response to those incidents the central government set up this corporate debt market development fund and the guarantee scheme for corporate debt. Do you see that as sort of uh helping mitigate this extreme volatility in bond markets or you know giving people a sense of comfort that systemic risk is now under would technically be under control if at all such situations arose again. uh so you know thankfully or otherwise you know post the setting up of the fund or post those situation we have seen a very different run and we haven't seen the need to do that but yes they can effectively work as a market maker where liquidity is a compulsion we have to understand a significant part which is of you know this industry also works in a T+1 guidelines and therefore you know it can be any time but liquidity becomes and they do not have the access to the banking lines like an RBI lines so repo Plus this fund can be very useful in times. Uh we are hoping that you know >> this reduce anxiety levels.

[00:34:54]>> It reduces anxiety levels. Yes.

[00:34:56]>> Okay. Because you know we tend to get a little worried about the liquidity in the corporate bond market. You've been talking about it over the last couple of minutes quite uh you know extensively.

[00:35:06]uh you know uh the other question I had uh Nepa was that how do we address this problem of the pricing of non-s sovereign debt because you know in any country if you need to price corporate debt non-s so sovereign debt you need a yield curve that's a well-developed yield curve that you know is across all teners and all maturities like unfortunately what happens in India is that our entire GC market seems to be sort of stuck in that seven to 10 year kind of uh tenor where you have reasonable price discovery happening on the government uh yield curve and beyond that you know you have very distorted credit spreads so how do we tackle that problem if I were an investor in this bond market >> so I think what we have seen in last 2 three years a very steep yield curve which we hadn't seen for a very long time which has allowed the short term of the yield also to be priced well so you know you have a deep curve which is 2 to 5 year and then 5 to 10 year.

[00:36:07]Fortunately, our insurance and pensions are becoming reasonably big. So, you know, today Indian pension funds are as big as you know most of their international counterparts and they do invest almost 25 to 40% in government security. So if you see last few years we have seen a 10 to 40 year curve also being established and they may not be a big trader on a daily basis but they are investors and since the auction comes every week right I think a reasonable amount of change we have seen that we do see a one year to a 40-year price which was totally absent earlier there is also the stripping which allows a zero yield curve to establish also took place and you know in any again steep cow those markets thrive. So we have seen insurance company very harshly participating in those markets.

[00:37:04]>> So somewhere uh you know may not be crazy volume but we have seen a reasonable change in terms of tenure and in terms of transparency and in terms of volume. So once that is done then obviously comes the you know non-s sovereign market. What we have seen is of course you know it's a different world for last three years right after COVID we've seen war the spreads have been unprecedented and there are times within a same window bracket like on double A can trade with 150 bits difference and we p I personally feel that it's a lot to do with what liquidity that provides and some of the uh percept perceived risk I think both get priced in that very very uh well so you If you see a largely traded issue obviously the pricing is gets better you know because many more participants are there and uh you know there would be a double A but people don't perceive it the same as the other double A or maybe an upgrade story the yields could be higher >> so you know as an extension of this question I just wanted to ask you that the AAA bond yields tend to move in tandem with the repo rates so when report rates move up or move down the AAA bonds sort of uh reflect that but as you rightly said that doesn't happen in the you know lower rated bonds. So what are those factors other than monetary policy that you know impact the yields of these lower rated bonds like you know you said perception but what are those factors that >> industry risk so like if you see micro finance industry which did go through you know a good amount of uh write offs you saw the yields raising the good part of at a yield there was money available on bonds as well as for equity for the balance sheets to be cleaned up again.

[00:38:55]So the perception of the The sector specific risk.

[00:38:58]>> It gets very sector or a company specific in terms of risk. Like we saw real estate at a very high yield because one there was no accessibility to banking finance for those people. At the same time the risk perceived was much higher five years back. Today if you see the you know real estate bonds which will be probably uh supported by actual constructions and uh buyers the yields could differ. So I mean infrastructure for a reason. We saw the airports in covid times raising funds on you know mis >> but then we saw institutions like uh nafed IFCL NIF come in and we've seen infrastructure yields on airport roads drop by 350 bips.

[00:39:44]So you know who are the market participant is important industry risk is important. So let me sort of uh move into asking you a couple of questions on the retail investor because uh that's one segment that we find absent in the corporate bond market and most retail investors have preferred traditional investments for obvious uh reasons right and you know in spite of the fact that markets have become more accessible to them because we were talking about OBP and how you know there are platforms digital platforms that are available for them to access most of them still don't understand the risks and benefits of investing in the corporate bond market.

[00:40:21]So I mean they may not understand what duration means. They may not understand what yield to maturity means uh let alone what things like convexity etc you know mean because that'll be way beyond you know their understanding. So how do we improve the you know financial literacy uh for retail participants? You know you did tell me that lot of these platforms have websites which provide information but you know just by providing information they don't become wiser so how do we go about doing that >> I think there is a time has come probably to have that awareness in terms of what debt instrument can do as as you know we all >> so what can it do can you tell me that >> uh you know we say that compounding is the eighth wonder of the world so when you look at your equity portfolios in a debt market which has given you more than 10% return year on year at the end of you know 10 years they can be significantly similar. uh you know equities have always been darling of uh Indian debt markets of course speculation wealth creation retail investors >> Indian retail investors >> because there is of course a hope of you know multiplying your money correct >> uh also the accessibility >> so what is steady compounding >> steady compound >> can give you very similar kind of outcomes uh like investing into an equity uh mutual fund or an equity directory okay and I think that benefits need to know uh I think there could be a you know we have had a great education round for equity and mutual funds countrywide now that interest has gone up now that there is an ability to give that platform and cater to that world I think it's very important >> what about lower risk I mean is that something that uh you know we would uh we could get investors to understand >> absolutely very very important and you know it can help to put a lot of channelization of savings into this path >> so you on the same uh sort of uh argument which you had uh why is it that debt mutual funds have not sort of stepped in to this gap because you know it is difficult for retail investors to understand the corporate bond market but you have an instrument like a debt mutual fund because if you look at the you know 10 and a half lakh crores of debt mutual fund AUM you know less than 50% is retail nearly all of it is I mean 50% of it is institutional money right so how is it that or why is it that the debt mutual funds haven't stepped into the space and you know try to you know educate the retail investor >> so two two things uh you know one of course something which can help debt market either direct or mutual fund of course has been the tax part and you know one is not really questioning about why higher tax but you see every other instrument whether you're talking about equity whether you're talking about uh you know reit and invit whether we're talking about even a real estate which people can buy today has a far better tax advantage and the difference is just too wide you know even if I'm taking a real estate for 3 years I am far better off a rental instrument than buying a bond >> right >> and buying a bond fund >> buying a bond fund or direct bond because even direct bond is getting taxed at highest marginal tax whereas all other savings is incentivized to be safe. So I think the difference can certainly come down.

[00:43:49]Mutual fund of course had a you know one piece where they had to step back because they had a tax advantage which went whereas the other funds have the advantage. So that is the one very important. Second I think it's a pool of investments uh which apart from liquid and overnight it's a view.

[00:44:08]So if my time horizon does not match with the fund, my returns can go quite up and down depending on the market movements where those investor may be better off coming to a direct debt where they can have a defined return on the overall uh scheme of things. So I think what debt mutual fund provides great is the liquidity and you know I think apart from few corporates at this point of time and because again they are at a short end of the curve the returns are limited. So you can see that a lot of them are now changing into the credit fund or private credit where the aums are rising where people have started investing money more from a yield perspective than a liquidity management.

[00:44:51]>> Okay. uh so you know passives have made a very big impact in uh you know equity so now there are I mean you know literally a large amount of new money that's coming into equity mutual funds are coming into passives uh the total passive aum in the bond market is something like two lakh crores I think about 50% of them would be corporate bonds 50% of them would be GSX and SDAs etc so could passives be a you alternative uh to actively managed debt funds uh for retail investors.

[00:45:28]>> I think a big investors especially pension and all will probably have to align to that you know methodology for that to become a reasonably big fund.

[00:45:38]>> Okay. Because uh you you have like for example the Bhat bond fund etc which is giving you exposure to you know fairly large spectrum of you know the corporate bond market today isn't it? Yes, absolutely. But what happens a larger investor are able to do it themselves.

[00:45:54]The variety as well as you know the mix.

[00:45:57]So the ability to have a larger corpus you know and then which can be followed by retail is slightly less.

[00:46:05]>> Right. So thank you so much uh Aniba for you know this conversation. It is really been fascinating and I think know we've taken a lot of insights on the corporate bond market from you today. Well >> thank you so much. really appreciate it.

[00:46:19]It was lovely talking to you and uh look forward to learning more and more from you.

[00:46:24]>> Sure. Thank you.