Tuesday, March 07, 2017

Secondary market liquidity needed to attract retail investor into corporate bond space: SEBI official

Infusing some amount of secondary market liquidity can help attract retail investors to enter the corporate bonds’ space, a top Securities Exchange Board of India (SEBI) official said at an ASSOCHAM event held in New Delhi today.
“As retail investor, when I get into bonds I also think about liquidity. When I put money in the banks’ fixed deposits, it is not merely for the interest rate that I get but it is also for the liquidity it gives me, that gives me a tremendous amount of comfort in addition to the return, though the return is much less but I am satisfied because the liquidity is there,” said Mr G. Mahalingam, Whole Time Member, SEBI while inaugurating ASSOCHAM national conference on Bond Market.

“If same were to be the case with the bonds, I am sure that it is going to be an important, tempting factor for the retail investor to come into the bonds space and that is where perhaps some amount of secondary market liquidity is needed,” he added.

Mr Mahalingam however emphasised upon the need to create that liquidity.

“Even with a much lesser liquidity we can afford to live within the corporate bond world,” he said.

The SEBI Whole Time Member also said that people should be allowed to move around freely from one segment to another segment with free connectivity as that would create and open up the entire market in a robust manner which could not be imagined.

“If we can open up this connectivity, if the banks can play a role in the exchange traded platform segment, we are going to have a bond market where perhaps the liquidity will go unchallenged and perhaps match the liquidity levels in the US,” said Mr Mahalingam.

He also said that it must be seen whether regulators like IRDA (Insurance Regulatory and Development Authority), PFRDA (Pension Fund Regulatory and Development Authority) have created that kind of a bandwidth for the insurance companies, for the pension funds, provident funds to invest in the bond market.

“There is another question which we need to find out whether these regulators have to open up their space in a bigger way, as SEBI feels it has opened it up for mutual funds sufficiently,” further said Mr Mahalingam.

He said that on an average, the portfolio return cannot be more than 200-300 basis points in corporate bonds.

“If we understand this reality, then we will say that bonds are really-really good investments, if we do not look at this reality and if we continue to live in utopia that I am going to earn a return which is going to be double-triple of the bank deposits, we do not touch the bonds at all, this is the problem,” he said.

He lamented that most people do not realise that bond markets are growing. “One stark fact now is that bond markets growth this year has out-stripped the bank credit growth, which is surprising, it has never possibly happened in the past at all.”

He informed that bank deposit growth this year is almost close to about 10 per cent, the bank deposits are standing at Rs 105 lakh crores. While the bank credit has grown by an abysmal 4.8 per cent this year and it is at around Rs 73 lakh crores. “If you look at correspondingly the bond market, it has really grown by leaps and bounds.”

Talking about the initiatives taken by the government with a view to boost the corporate bond markets in India, Mr Mahalingam informed that the insolvency regime is finally in place, besides the enablers have also been put in place so today there is no reason why people should feel sceptical about investments in bonds.

Further he said that government’s borrowing budget in the current year has come down by almost Rs two lakh crore which is going to be a great enabler for the corporate bonds to come into the picture.

“There is a Rs two lakh crore space which is left vacant, which has to be absorbed possibly by corporate bonds, some of it is already in the coming form of commercial paper, certificate of deposits is coming down obviously for the reason that banks are no longer in need of deposits which have poured into the banks ever since November 9,” said Mr Mahalingam.

“Given that background, the government is actually vacating space, there is a huge amount of space which is developing so automatically the corporate bond scenario is going to grow in a very robust way,” he added.

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