Corporate bond market likely to double by 2030: Crisil

Kolkata: The Indian corporate bond market is poised for rapid growth despite clocking a compound annual growth rate (CAGR) of nine per cent over the past five years.

Crisil Ratings expects the outstanding size of the market to more than double from around Rs 43 lakh crore as of last fiscal to Rs 100-120 lakh crore by fiscal year 2030, a statement said on Monday. "The growth will be driven by a confluence of factors. Large capital expenditure (capex) in the infrastructure and corporate sectors, growing attractiveness of the infrastructure sector for bond investors, and strong retail credit growth are expected to boost bond supply, while the rising financialisation of household savings should drive demand. Regulatory interventions are also helpful," Crisil senior director, Somasekhar Vemuri said.

Capex in the infrastructure and corporate sectors is anticipated to be propelled by decade-high capacity utilisation, healthy corporate balance sheets, and a favourable economic outlook, he said. Crisil envisions a capex of around Rs 110 lakh crore in these sectors between fiscals 2023 and 2027, approximately 1.7 times higher than that of the past five fiscals.

The rating major expects this pace of capex to continue beyond fiscal 2027. The corporate bond market is projected to finance about a sixth of the anticipated capex. Infrastructure assets are emerging as strong contenders for investment owing to their improving credit risk profile, promising recovery prospects, and long-term nature. Currently, infrastructure accounts for only about 15 per cent of the annual corporate bond issuance by volume, the note said.

However, structural improvements facilitated by a raft of policy measures are expected to make infrastructure bond issuances more attractive to patient-capital investors, particularly insurers and pension funds, who constitute the key investor segment in the bond market.

Crisil estimates assets in the managed investment segment to double to around Rs 315 lakh crore by fiscal 2027, and the trend is expected to continue well past fiscal 2027. These investments will be in both equity and debt and a good portion of it may flow to the corporate bond market. The agency stated that retail credit growth is expected to maintain its momentum, fueled by private consumption growth and the formalisation of last-mile credit flow. The bond market, being a crucial funding source for larger NBFCs and accounting for a third of the funding mix, will play a pivotal role in financing retail credit flow.

Managed investments are expected to continue to outpace bank deposits in terms of growth. Factors such as increased digitisation, rising investor sophistication in retirement planning, higher awareness and utilisation of insurance, investment objectives aimed at surpassing inflation, and a burgeoning middle-income population are contributing to the growth of managed investments.