India’s bond market is witnessing a notable shift back towards listed debt, a trend that analysts believe may have staying power. This resurgence is propelled by a combination of regulatory encouragement, evolving investor preferences, and a strengthening market infrastructure.
Factors Driving the Shift
Several factors are contributing to this trend. Firstly, regulatory bodies are actively nudging issuers toward exchange-listed bonds. These regulations promote transparency and investor protection, making listed bonds a more attractive option. Secondly, investors are increasingly favoring listed securities due to their enhanced liquidity and ease of trading on exchanges like the NSE and BSE. Listed bonds offer higher liquidity than unlisted bonds, as they can be easily traded on exchanges. Finally, the market infrastructure has improved significantly, making it easier for issuers to list their debt and for investors to access and trade these securities.
Benefits of Listed Debt
The shift towards listed debt offers several advantages for both issuers and investors. For issuers, listing bonds can broaden their investor base, attracting a wider range of domestic and international investors. It also enhances their reputation and credibility, potentially leading to better pricing on their debt offerings. For investors, listed bonds provide greater transparency, liquidity and regulatory protection. The Securities and Exchange Board of India (SEBI) regulates listed bonds, reducing the chances of default, whereas unlisted bonds do not have this protection.
Market Trends and Growth
India's bond market, encompassing government securities (G-Secs), state development loans (SDLs), and corporate bonds, reached approximately ₹226.3 trillion (approximately USD 2.66 trillion) as of December 2024. Corporate bonds have shown substantial growth, increasing from nearly ₹16 trillion to ₹51.58 trillion between 2014 and 2024. In FY25, Indian companies raised over ₹9.9 trillion through corporate bond issuance, marking a record high.
Global Index Inclusion
The inclusion of Indian bonds in global indices, such as JP Morgan's GBI-EM index and FTSE's EMGBI, is expected to further boost the market. Bloomberg is also likely to follow suit in early 2026. This inclusion could trigger passive inflows of $30-40 billion per year, potentially reshaping the market's depth and visibility. By September 2025, India's allocation is projected at around 9-10% of the EMGBI by market value, making India the second-largest component after China.
Challenges and Opportunities
Despite the positive trends, some challenges remain. The secondary market for corporate bonds in India is still relatively shallow, with low liquidity and limited price transparency. Investor concentration, with heavy dependence on banks, also needs to be addressed. Overlapping regulations and cumbersome disclosure requirements can also restrict market efficiency. NITI Aayog has released a report outlining strategies to strengthen and expand India's corporate bond market, offering both short-term and long-term measures. The report identifies obstacles, including a shallow secondary market, investor concentration, regulatory complexities, and investor constraints. Addressing these challenges will be crucial for the sustained growth of the listed debt market.
RBI's Role and Bond Yields
The Reserve Bank of India (RBI) plays a crucial role in managing liquidity and influencing bond yields. The yield on India's 10-year G-Sec fell to around 6.6% recently, after flash PMI figures indicated that steep US tariffs continued to weigh on economic activity. The RBI's bond buying for this financial year has already hit a record high, with markets anticipating more purchases in the last quarter of the fiscal year.
Looking Ahead
The shift towards listed debt in India's bond market is a positive development that promises to enhance transparency, liquidity, and investor participation. With continued regulatory support, infrastructure development, and growing investor confidence, the Indian bond market has the potential to become a key pillar of India's financial system. Market experts anticipate that recent growth trends could potentially double market activity by the end of 2026, making these reforms crucial for sustainable development.
