₹200 lakh crore. That’s the size of the Indian bond market, which is 2X the amount of money in fixed deposits, and 3X the amount in savings and current accounts. Despite its large size, there is significant headroom for growth. The bond market still lags the size of the equity market, which is not the case in other more developed economies. Hence, despite its large size, the bond market continues to see sustained rapid growth of over 20% driven by a multitude of factors.

Stable Indian economy amidst geopolitical volatility

India’s economy has emerged as a pillar of steadiness with its GDP growing consistently at 6.5% supported by strong forex reserves and a stable government. Meanwhile, we have had significant geopolitical turmoil driven both by economic factors such as global tariffs, as well as territorial conflicts and wars. This has raised concern amongst global debt investors, leading to a selloff of government bonds with yields rising to unprecedented levels of 4.5% for US Treasuries. Meanwhile, there has been recognition of India’s growth and stability, and as a result Indian bonds have been included in leading global indices including those of JP Morgan, Bloomberg, FTSE Russell. As investors turned cautious on other markets and bullish on India, we have seen inflow into Indian bonds.

Increasing corporate participation in issuances

The Indian bond market is driven by government bonds and corporate bonds. While the government regularly issues bonds to fund its expenses, corporates have historically relied more on bank loans for financing. However, there is now greater interest amongst companies to tap the domestic bond and raise money. As per reports, fundraising through debt instruments touched a historic high in FY 24-25, crossing ₹11 lakh crore. We are seeing increasing confidence amongst corporates to opt for Bond IPOs, leading to new issuances of record size being fully subscribed.

Increasing retail participation for returns and diversification

The increase in supply of bonds from issuers has been met by an equivalent demand from not only existing institutional players, but first-time bond investors from the retail segment. Retail investors have historically not had access to the bond market due to a multitude of reasons including high ticket size, lack of transparent pricing, and cumbersome processes. All of these have been addressed in the last 3 years thanks to a proactive approach by the regulator and the emergence of fintech players.

Over the years, the minimum face value for bonds has been reduced from ₹10 lakhs to ₹1000, and ₹100 for government bonds. Moreover, SEBI introduced guidelines to set up Online Bond Broking Platforms (OBPP) in 2022, akin to equity brokers. These changes helped new fintech players emerge in the space, which digitized processes and created awareness to bring bonds to retail investors. Moreover, with reducing FD rates, and stabilising equity markets, retail investors have started seeing bonds as a safe way to earn over 10% fixed returns and diversity their portfolios.

The Indian bond market has emerged as a stable yet vibrant ecosystem where we see strong growth in issuances as well as investor interest both from domestic retail as well as global institutional investors. There is still significant scope of growth: In issuances, we have yet to see the emergence of municipal bonds in a big way but given the recent successes, this market might scale quickly. Corporate issuances are expected to grow with easier norms and processes. Investor interest is growing exponentially as investors tap into bonds for consistent inflation-beating returns. Its never been a better time for the Indian bond market.

Views are personal. The author of this article is Suresh Darak, the founder of Bondbazaar.