Brickwork Ratings being the knowledge partner with CII, prepared and released jointly with CII, the Research Report on “Macro Economic, Capital Market Outlook and Key Sectoral Trends” at the Financial Market Conclave Emerging Trends on 3rd August 2019, at Hyatt Regency, Kolkata.
In this research report, the Indian governments’ over reliance on domestic borrowing and the preference over G-sec market over corporate debt market has been highlighted. Government’s initiative to introduce rupee denominated bonds or masala bonds is a positive step in relieving the pressure on domestic bond market.
BWR strives to constantly engage in the development of the financial, debt and capital markets in the country through its training and financial literacy programs. BWR participates in conferences or seminars as Knowledge Partners with leading industry bodies like CII. In this context, CII organized the 8th edition of Financial Market Conclave to deliberate on the recent developments in the Financial Market. CII-Brickwork team shared a set of business models and emerging trends which would be suitable in the current scenario; it has also analysed how the stakeholders can go about it in the changing market dynamics.
The Union Budget 2019-20 has many encouraging announcements like merging of NRI portfolio route with FPI, allowing FIIs & FPIs investment in debt securities issued by NBFCs, deepening of corporate tri-party repo market in corporate debt securities, enable stock exchanges to allow AA rated bonds as collateral, setting up of Credit Guarantee Enhancement Corporation with specific focus on infra sector and Social Stock Exchange under SEBI for listing social enterprises & voluntary organisations.
With a major paradigm shift in the financial market wherein the household sector is increasingly investing more in the secondary market, it is very important for the market to embrace the Emerging Trends. Thus, the development of a vibrant bond market is imperative to meet the financing needs. The future long-term financing needs of the industry, particularly those in the infrastructure sector with long gestation periods in their projects will have to be met by developing a vibrant corporate bond market.
The Indian debt market is dominated by G-sec market. The market-based debt instruments are accessed only by large corporates. The smaller firms may not have the required credit rating nor do they have the economies of scale enjoyed by large well-established corporates in private placement. High cost of debt instruments vis-à-vis other forms of raising funds, liquidity problems due to the absence of a vibrant secondary market, lesser scope to tap cheaper overseas market even after hedging for exchange rate risks, non-uniformity of stamp duties across States are some of the supply side factors hindering the growth.
The absence of a deep and liquid corporate bond market at the longer end of the maturity spectrum causes corporations either to go for rolling shorter maturity borrowings, which tend to be more expensive, or to go for foreign borrowings, which pose exchange-rate risks. Recently, RBI relaxed the end-use restrictions relating to External Commercial Borrowings (ECBs) for working capital requirements, general corporate purposes and repayment of rupee loans. With the benefit of lower cost of borrowings in the ECBs as opposed to the domestic market, NBFCs and corporates may prefer to raise cheaper offshore funds as they continue to face liquidity crunch.