Alternate Investment Options Must for Corp Debt Market Growth

By SiliconIndia   |   Wednesday, November 30, 2011
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Mumbai: The government should allow alternate investment opportunities for the bond-holders to enable deeper penetration of the nascent corporate debt market in the country, say financial markets experts. "Unless there are alternate investment opportunities available for the bond-holders, corporate debt market will not develop here," L&T Finance Holdings president and whole-time director N Sivaraman told a meeting on the capital markets organised here by CII today. At present, majority of investors in the corporate bond market hold their investment to maturity due to lack of buyers, Sivaraman and other experts opined. "Larger participation can be ensured if active trading in the bond market is facilitated through regulations which will help in better price discovery," Sivaraman argued. Corporate bond market holds significance in the wake of higher infrastructure spending proposed by the government in the next Plan, which can''t be funded alone by banks and domestic sources. The government has targeted USD one trillion in infra spending during the 12th Plan period and there is a 30 percent funding gap already identified in this. And the government feels that an active corporate bond market can help meet this gap. "Given the higher infrastructure spending proposal, we have to attract foreign investment to corporate debt market for infra financing," Kotak Mahindra Bank executive-chairman and managing director Uday Kotak said. Kotak also said that participation from retail investors should be encouraged for deeper penetration. Referring to foreign institutional investors'' participation in the corporate debt market, industry experts said FIIs are holding back their investment in corporate bond market due to unpredictability of returns. "Infrastructure sector comprises of many sub-sectors, which are regulated by many independent regulators. So, global funds are reluctant to invest as there is frequent policy changes in these various segments of the infrastructure sectors," KKR India Advisors director B V Krishnan said. He further said factors like currency fluctuation, inflationary environment and higher forward premium are some of the issues which need to be addressed to attract FIIs into the domestic corporate debt market.
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