Nath, Golaka (2012): Indian corporate bonds market –an analytical prospective.
Download (860kB) | Preview
Bond markets in emerging markets are illiquid as investors and issuers grapple with major microstructure and legal issues. The importance of bond markets as a source of finance has increased during the economic slowdown as companies diversified away from reliance on banks for funding and many governments increased borrowing to fund the economic slowdown in their countries. Indian corporate bonds market is very illiquid vis-à-vis the Government securities market and heavily rely on AAA rated bonds for both issuance and trading. The data dissemination provided in public domain is inadequate to effectively price bonds taking all risks into account. Bank bonds demand hefty premia from investors and they are considered almost risk free with low credit spread. Investors use Credit rating information to price bonds in the market. Indian corporate sector is fast moving to international markets to raise funds through ECB / FCCB route though FCCB funding has dried up due to bad equity market conditions. Issuance market has remained concentrated with few issuers dominating the market. Financial companies like Non-Banking Finance companies dominate the market with issuances. The study did not find any significant relationship of coupon with optionality of the bond but it found that the Rating has significant relationship with coupon. Lower maturity bonds were having comparatively higher coupon than long maturity bonds. This may be possible as the year 2011-12 witnessed unprecedented liquidity scarcity in the Indian market and rolling over a debt was considered costly and investors demanded higher premia to fund short term bonds. While trading, investors demanded a higher premia for taking investment decision on bonds having floating rate. The relation between Rating class and yield was also found to be rational as higher yield were demanded on bonds with lower rating. The probability of default is higher at the shorter end and the same falls at the longer end. The reason may be the uncertainty existing in the short term with respect to liquidity and other macroeconomic factors might be warranting higher probability of default to be factored in yields. The study finds that the market used the past spreads to price the credit spread they would charge on corporate bonds while trading in the market.
|Item Type:||MPRA Paper|
|Original Title:||Indian corporate bonds market –an analytical prospective|
|English Title:||Indian Corporate Bonds Market –An Analytical Prospective|
|Keywords:||Indian Corporate bond market, corporate bond, emerging market, bond rating, probability of default, credit spread, spot yield curve, credit risk|
|Subjects:||D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D53 - Financial Markets
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies
|Depositing User:||GOLAKA NATH|
|Date Deposited:||24. May 2012 14:46|
|Last Modified:||22. Feb 2015 09:36|
Adikesavan, S. (2011). “Policy on ECBs Needs to Change”, The Hindu Business Line, (Sep. 27).
Ahluwalia, Montek Singh. (1999), “India’s Economic Reforms”, India in the Era of Economic Reforms (eds. Jeffrey Sachs, Ashutosh Varshney & Nirupam Bajpai).
Allen, William T., Reinier H. Kraakman and Guhan Subramanian (2009), Commentaries and Cases on the Law of Business Organization. Wolters Kluwer.
Armour, John and Lele P. (2009), “Law, Finance and Politics: The Case of India”, 43 Law & Society 491.
Anant, T.C.A. and N.L. Mitra (1998), “The Role of Law and Legal Institutions in Asian Economic Development: The Case of India Patterns of Change in the Legal System and Socio-Economy”, Development Discussion Paper No. 662, Harvard Institute for International Development.
Anant, T.C.A. and Ram Singh, Law and Economics of PPP Contracts for Expressways in India, Draft (2009).
Asunscion-Mund, Jennifer (2007), India’s Capital Market: Unlocking the Door to Future Growth.
Babu, G. Raghu and T. Sandhya (2009), “Indian FCCBs: Current Scenario”, 15 Taxmann’s Corporate Professionals Today 387.
Balasubramaniam, N., Bernard S. Black and Vikramaditya Khanna (2010), “The Relation Between Firm-Level Corporate Governance and Market Value: A Study of India”, 11 Emerging Markets Review 319 – 340.
Batra, Sumant (2003), “The Asian Recovery: Progress and Pitfalls: The Position of India”, Global Forum on Insolvency Risk Management.
BIS. Zero-Coupon Yield Curves: Technical Documentation. BIS Papers 25, Bank for International Settlements, 2005.
Black, Bernard S. and Vikramaditya S. Khanna (2007), “Can Corporate Governance Reforms Increase Firms’ Market Values? Evidence from India”, 4 Journal of Empirical Studies, 749 – 796 .
Chakrabarti, Rajesh (2010), “Bond Markets”, Capital Markets in India (eds. Rajesh Chakrabarti & Sankar De).
Diebold, Francis X. and Li Canlin, Forecasting the Term Structure of Government Bond Yields. Journal of Econometrics, 130(2):337–364, 2006.
Dobbs, Richard, et. al. (2010), McKinsey Global Institute, Farewell to Cheap Capital? The Implications of Long-Term Shifts in Global Investments and Savings.
Government of India (2010), Budget and Economic Survey.
ICRA Doc on Securitisation (April 2011), (http://www.icra.in/Files/ticker/Indian_Securitisation_Mkt.pdf)
Khanna, Vikramaditya and Varottil, Umakanth, (2012) Developing the Market for Corporate Bonds in India (SSRN)
Kothari V (2012), Taxing time for securitisation in India: tax officers’ questions expose weak structures http://www.microfinancefocus.com/mffnews/taxing-time-securitisation-india-tax-officers%E2%80%99-questions-expose-weak-structures
KPMG (2011), “External Commercial Borrowings: Rationalisation and Liberalisation”, KPMG Flash News (Oct. 3).
Krishnan, Jayanth (2010), “Globetrotting law firms”, 23 Georgetown Journal of Legal Ethics 57–102.
Luengnaruemitchai, Pipat & Li Lian Ong (2005), “An Anatomy of Corporate Bond Markets: Growing Pains and Knowledge Gains”, IMF Working Paper WP/05/152.
Ministry of Finance (2011), “Infrastructure Debt Fund”, Press Release.
Mishkin, F. (2006), The Economics of Money, Banking and Financial Markets, Addison-Wesley.
Nath, Golaka C., Yadav, Gaurav and Wagle, Amruta (2006), Estimating A Reliable Benhcmark Sovereign Yield Curve in an Emerging Bond Market (CCIL)
Nelson, Charles R. and Siegel, Andrew F., Parsimonious Modeling of Yield Curves. Journal of Business, 60(4):473–489, 1987.
Patil Committee Report (2005) on Corporate Bonds and Securitisation
Rajan, Raghuram & Luigi Zingales (2003), “The great reversals: the politics of financial market development in the twentieth century”, 69 Journal of Financial Economics 5.
Rajaram, Sahana & Payal Ghose (2011), “Indian Corporate Bond Market”, Clearing Corporation of India.
Reserve Bank of India (CDS) (2011), Guidelines on Credit Default Swaps (CDS) for Corporate Bonds.
Reserve Bank of India (ECB) (2011), Master Circular on External Commercial Borrowings and Trade Credits (Master Circular No.9 /2011-12).
Reserve Bank of India (2012), Final Guidelines on Securitisation and Direct Assignment of Loan Receivables (May 7, 2012)
Roe, Mark J. (2006), “Legal Origins, Politics and Modern Stock Markets”, 120 Harvard Law Review 460. Securities and Exchange Board of India (2011), “Statistics on Corporate Bonds”, available at http://www.sebi.gov.in/cms/sebi_data/statistics/corpbondsdb.html.
Shah, Ajay, Susan Thomas & Michael Gorham (2009), India’s Financial Markets: An Insider’s Guide to How the Markets Work.
Shroff, Cyril Suresh & Ashwani Puri (2006), “India”, The Asia-Pacific Restructuring and Insolvency Guide.
Singh, Gurtej (2011), “From the Path of Least Resistance to Path Dependence: The Political Economy of India’s Corporate Bond Market”.
Singh, Karan (2009), “India: The Need for Reform”, International Financial Law Review (Mar. 1), available at http://www.iflr.com/Article/2166570/India-The-need-forreform.html.
Svensson, Lars E.O., Estimating and Interpreting Forward Interest Rates: Sweden 1992–1994. IMF Working Paper 94/114, 1994.
World Bank (2012), Doing Business in a More Transparent World.