Tariffs and commodity price volatility are major concerns for the bond market in 2026, according to Vishal Goenka, co-founder of IndiaBonds.com. In an interview with Mint, Goenka highlighted these factors, along with potential stress in the Non-Banking Financial Company (NBFC) sector due to slower economic growth, as key risks.
Goenka noted a shift in how retail investors perceive bonds. Bonds are increasingly viewed as active, tradable components of India's capital markets rather than static yield instruments. This shift is reflected in the increased secondary market activity, with corporate bond trades reaching record highs in FY25 and continuing to climb.
India's infrastructure development requires long-term capital, and corporate bonds are playing a vital role alongside banks in meeting this need. Bonds provide issuers with flexibility in tenor and structure, while a growing domestic investor base enhances funding reliability. Improved secondary liquidity strengthens price discovery and refinancing confidence, further supporting large-scale capital expenditure. The corporate credit market has experienced steady growth through non-banking funding via capital markets.
The Reserve Bank of India's (RBI) monetary policy stance significantly impacts the corporate bond market, particularly through expectations and forward guidance. In 2025, a 125 bps repo rate cut by the RBI led to healthy gains for short-term bonds.
However, potential risks remain. Escalating tariffs, as seen with the U.S. increasing tariffs on Chinese goods, can create market volatility. While India has navigated trade tensions through diplomacy and forward-looking monetary policy, the situation remains dynamic. High-value exports from India, including electrical machinery, pharmaceuticals, gems, and steel, are particularly vulnerable to tariff increases.
Commodity price fluctuations, especially in oil, also pose a threat. A surge in food or fuel prices could disrupt the RBI's easing cycle and negatively impact bondholders. The central bank's approach of balancing monetary easing with exchange rate stability is crucial for maintaining market confidence.
Despite these challenges, India's bond market demonstrates resilience due to structural reforms that have increased liquidity and attracted long-term capital. Institutional reforms and inclusion in global bond indices have also contributed to this stability. However, maintaining inflation control and fiscal prudence is essential.
