Bond Market Analysis
Understand bond market from a perspective of who are the issuers and the modes they utilize
Financial sector: Financial sector remains has the highest share in borrowings through capital markets. Access to capital is a key resource for the financial sector for onward lending. Diversification of capital sources is a key mitigant to business risk for banks and NBFCs.
NBFC Dominance: NBFCs have been the most prominent issuer of Non-PSU bonds, especially 2019 onwards with a CAGR of 25% during this period. Typically, NBFCs do not have access to customer deposits and end up relying heavily on capital markets to raise funds. Post Covid-19, NBFC borrowings through capital markets increased sharply in a low interest environment.
Bank borrowings sensitive to interest rates: While NBFC borrowings continued to increase, bank borrowings through capital markets saw a dip post 2022. RBI raised repo rates by 250bps between May'22 and Feb'23 which translated to banks being conservative in borrowings.
Difference between Private placement vs public offer: Private placement is a process where a debt security is initially subscribed by identified institutions / individuals. In a public offer, the process is like an IPO where larger participation happens during the listing process. The information disclosure is higher in case of a public offer vs private placement through as per the norms prescribed by SEBI.
Dominance of Private placement: >95% of issuances of listed bonds is done through the private placement route. Growth in private placements is also higher than growth in issuers using public offer. SEBI is taking significant measures to ease the compliance and disclosure norms for public offer.
