India’s financial landscape is undergoing a transformative shift, with the corporate bond market emerging as a vital alternative to traditional bank financing. Historically, Indian companies have relied heavily on bank loans to meet their capital needs. However, recent years have seen a surge in corporate bond issuances, driven by favourable regulatory changes, technological advancements, and evolving investor preferences. As of March 2025, the corporate bond market in India stood at an impressive ₹53.6 trillion, with projections suggesting it could double to ₹100-120 lakh crore by 2030.
Understanding Corporate Bonds
Corporate bonds are debt securities issued by corporations to raise funds for various purposes, such as business expansion, acquisitions, or debt refinancing. When investors buy these bonds, they lend money to the issuing company, receiving periodic interest payments (coupons) and the principal amount upon maturity. Unlike equity investments, corporate bonds do not confer ownership rights but offer a fixed income stream, making them a preferred choice for risk-averse investors seeking stability.
Corporate bonds in India come in various forms, including:
- Secured Bonds: Backed by specific assets, reducing risk for investors.
- Unsecured Bonds: Not backed by collateral, offering higher yields but with increased risk.
- Convertible Bonds: Can be converted into equity shares, providing potential for capital gains.
- Non-Convertible Bonds: Cannot be converted, focusing solely on fixed income.
The quality of these bonds is assessed through credit ratings by agencies like CRISIL, ICRA, and CARE, with ratings ranging from AAA (highest safety) to D (default). These ratings help investors gauge the risk associated with each bond, with higher-rated bonds offering greater security but lower yields.
Historical Context and Evolution
The corporate bond market in India has historically lagged behind the country’s robust equity market, which ranks among the top five globally by market capitalisation. However, concerted efforts by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have spurred significant growth. Key regulatory reforms have been instrumental in this transformation. For instance, SEBI’s reduction of the minimum investment amount for bonds from ₹10 lakh to ₹10,000 has made them accessible to retail investors, significantly broadening market participation. Additionally, SEBI’s 2018 circular mandating large corporations to raise at least 25% of their incremental borrowing through debt securities has driven market expansion.
A landmark development has been the inclusion of Indian government bonds in global indices such as the JPMorgan Government Bond Index – Emerging Markets (GBI-EM) in June 2024. Furthermore, Bloomberg and FTSE Russell have announced plans to include Indian bonds in their respective emerging markets indices starting in 2025, further boosting global investor interest. According to a CRISIL report, the corporate bond market grew at a compound annual growth rate (CAGR) of approximately 9% over the past five years, reaching ₹43 lakh crore by March 2023, with projections to hit ₹100-120 lakh crore by 2030. This growth is fuelled by increased foreign portfolio investments, with ₹121,059 crore invested in the debt market in FY24, the highest since FY 2014-15.
Why Companies Prefer Bond Financing
Indian companies are increasingly turning to bonds over bank loans for several compelling reasons:
- Lower Interest Rates: Corporate bonds often carry lower interest rates than bank loans, reducing the cost of borrowing. For instance, bond coupon rates typically range from 7% to 14%, compared to higher bank loan rates.
- Longer Tenures: Bonds offer longer repayment periods, often up to 30 years, compared to the shorter tenures of bank loans, allowing companies to manage long-term projects more effectively.
- Diversification of Funding Sources: Issuing bonds reduces reliance on banks, spreading credit risk across a broader investor base and enhancing financial stability.
- Regulatory Push: SEBI’s mandate encourages large corporations to diversify their funding through bonds, aligning with broader financial market development goals.
For example, companies like Aditya Birla Capital and Tata Capital have issued bonds to fund large-scale projects, leveraging the bond market’s flexibility and cost advantages. This shift not only benefits companies but also strengthens the financial system by reducing pressure on banks.
Current State of the Corporate Bond Market
As of March 2025, the Indian corporate bond market was valued at ₹53.6 trillion, with fresh issuances reaching ₹9.9 trillion in FY25, a record high. In 2024, Indian companies raised a record ₹10.67 trillion ($124.81 billion) through the sale of bonds till Dec, indicating robust market activity. The market is dominated by high-quality issuers, with A-rated companies accounting for a significant portion of issuances, primarily through private placements. The average daily turnover in the secondary market rose to ₹7,645 crore in FY25, up from ₹5,722 crore the previous year, indicating improved liquidity.
Key participants include:
- Issuers: Financial institutions, non-banking financial companies (NBFCs), and large corporates.
- Investors: Banks, insurance firms, mutual funds, and increasingly, retail investors via digital platforms.
- Regulators: RBI and SEBI, ensuring transparency and investor protection.
Recent trends include the rise of green bonds, with cumulative issuances crossing USD 55.9 billion by December 2024, supporting India’s renewable energy goals. Retail participation has also surged, with non-institutional investors’ share rising to 4% in mid-2023, up from 1%, following SEBI’s reduction in bond face value.
Metric | Value (as of March 2025) |
Market Size (Net Outstanding) | ₹53.6 trillion |
Fresh Issuances in FY25 | ₹9.9 trillion |
Average Daily Turnover | ₹7,645 crore |
Retail Participation | ~4% of market |
Report by: Business Standard
Impact of Monetary Policy
On June 6, 2025, the RBI cut the repo rate by 50 basis points to 5.50%, marking the third consecutive cut in 2025. The repo rate, the interest rate at which the RBI lends to commercial banks, influences the broader interest rate environment. A lower repo rate reduces borrowing costs, impacting the bond market in several ways:
- Increased Bond Prices: Existing bonds with higher coupon rates become more valuable as new bonds are issued at lower yields, leading to potential capital gains for investors.
- Higher Issuance: Lower borrowing costs encourage companies to issue more bonds, expanding market supply.
- Shift from Fixed Deposits: As fixed deposit (FD) rates decline, investors seek higher-yielding corporate bonds.
However, the bond market’s reaction to the June 2025 cut was mixed, with 10-year government bond yields rising from 6.14% to 6.29% due to the RBI’s shift to a neutral monetary policy stance, signalling limited future cuts. For corporate bonds, this environment favours short-tenure, high-quality bonds, which offer stability and attractive yields compared to FDs.
Investment Opportunities in Corporate Bonds
Corporate bonds present compelling opportunities for investors, particularly in the current economic climate:
- Higher Yields: Corporate bonds typically offer coupon rates between 7% and 14%, higher than government bonds (around 6.38% for 10-year G-Secs in June 2025) and FDs (5-7%).
- Regular Income: Periodic interest payments provide a predictable income stream, ideal for conservative investors.
- Diversification: Bonds reduce portfolio volatility, balancing the risks of equity investments.
- Capital Appreciation: Falling interest rates, as seen post the repo rate cut, can increase bond prices, offering capital gains if sold before maturity.
Investors should look at 2-3 year horizon for corporate bonds as they continue to offer good spreads over government bonds and FD schemes.
Risks Associated with Corporate Bonds
While corporate bonds offer attractive returns, they come with inherent risks that investors must carefully consider:
- Credit Risk: The risk of issuer default can lead to missed interest payments or loss of principal. Investors should choose bonds as per their risk profile. While bonds with high credit ratings minimises the risk, they usually offers lower yield as compared to bonds with lower credit rating.
- Interest Rate Risk: Bond prices are inversely related to interest rates. If rates rise, bond values may decline, impacting investors who sell before maturity. Shorter-term or floating-rate bonds can mitigate this risk.
- Liquidity Risk: Some bonds may lack active trading, making it difficult to sell without affecting prices. Investors should opt for bonds listed on exchanges or SEBI-registered Online Bond Platform Provider such as Altifi.
- Inflation Risk: Rising inflation can erode the purchasing power of fixed interest payments. Inflation-linked bonds or higher-yield bonds can help offset this risk.
- Call Risk: Bonds with call provisions may be redeemed early by the issuer, often when interest rates fall, forcing investors to reinvest at lower rates. Checking bond terms for call provisions is essential.
By understanding these risks and selecting bonds that align with their risk tolerance and investment goals, investors can make informed decisions to maximise returns while minimising potential losses.
Comparison with Other Investment Options
To fully appreciate the role of corporate bonds, it’s useful to compare them with other popular investment options in India:
- Fixed Deposits (FDs): FDs are safe, with deposits up to ₹5 lakh insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). However, their returns (5-7% as of July 2025) are lower than high yielding corporate bonds, which offer 7-14% yields. FDs are ideal for risk-averse investors but lack the potential for capital appreciation.
- Government Bonds: Issued by central or state governments, these bonds are virtually risk-free but offer lower yields (e.g., 6.38% for 10-year G-Secs in June 2025) compared to corporate bonds. They are suitable for conservative investors prioritising safety.
- Equities: Stocks provide higher return potential through capital gains and dividends but are more volatile. Corporate bonds offer stability and predictable income, making them suitable for investors with moderate risk tolerance.
- Debt Mutual Funds: These funds invest in a diversified portfolio of bonds, offering professional management but with management fees. They can be an alternative for investors who prefer not to select individual bonds, though they may carry different risk profiles.
Investment Option | Yield Range (2025) | Risk Level | Key Benefit | Key Risk |
Corporate Bonds | 7-14% | Moderate | Higher yields, diversification | Credit, interest rate risk |
Fixed Deposits | 5-7% | Low | Safety, insured up to ₹5 lakh | Lower returns |
Government Bonds | ~6.38% | Very Low | High safety | Lower yields |
Equities | Variable | High | High return potential | Volatility |
Debt Mutual Funds | 6-10% | Moderate | Diversification, professional management | Management fees, market risk |
Future Outlook
The Indian corporate bond market is poised for significant growth, with projections indicating it could double to ₹100-120 lakh crore by 2030, driven by increased issuances, foreign investments, and retail participation. The inclusion of Indian bonds in global indices is expected to attract substantial capital, enhancing market liquidity. The rise of green and sustainable bonds, with issuances surpassing USD 55.9 billion by December 2024, reflects growing investor interest in environmentally friendly investments. However, challenges such as global economic uncertainties, interest rate fluctuations, and geopolitical risks could introduce volatility. Investors should remain vigilant and consider these factors when building their portfolios. The RBI’s recent repo rate cut to 5.50% enhances the attractiveness of existing bonds, while platforms like Altifi.ai make investing accessible to a broader audience. Despite risks such as credit and interest rate fluctuations, corporate bonds remain a compelling investment option. As India aims to become a $5 trillion economy, the corporate bond market will play a pivotal role in financing growth, offering a win-win for issuers and investors alike.