Building bonds

India is the fastest-growing economy globally, which overtook China in 2014, still being vulnerable yet resilient due to inflation being brought under control. 

“Stable increasing macros are the wealth of Bond markets and a deeper, broader corporate Bond market becomes critical to long-term sustainability, Ashu Suyash, Managing Director and CEO, CRISIL, said during CRISIL’s 4th annual seminar in Mumbai recently. 

“CRISIL estimates India will need Rs 43 lakh crores for infrastructure build-out over five fiscals to 2020. Additionally, public sector banks need to raise Rs 1.7 lakh crore of Tier I capital by March 31, 2019 to conform to Basel III regulations. 

A number of pro-active measures need to be taken and we are already on this path. Stronger developmental rights, continuous policy impetus, pension and mutual funds needed, while liquidity and transparency with a consistent policy framework will contribute a lot,” she added.

Dr Paul Sheard, EVP and Chief Economist, SandP Global, said the global economy is expanding since mid-2009 but the real problem lay in the Eurozone area where 19 of 28 countries are highly-constrained in use of policy tools; individual members do not have their own printing press, though none of them want the Eurozone to break up or fragment. 

“Japan has faced two key challenges; deflation and declining workforce due to declining population. It has had its normal stagnation, and while it is putting on fiscal brakes too early, Japan should be able to exit from deflation – but productivity is needed to lift its real tangible growth and they will probably embrace immigration,” Sheard said.

Describing China’s 80 per cent growth as remarkable and second biggest contributor to global growth, he said that its policy-makers were moving too far, too fast and the challenge for them lay in; developing sophisticated and diversified financial system. “If they reform too quickly, it can lead to financial and economic instability being unleashed,” he noted.

“India is a shadow of China and its growth is lagging behind a little bit, but is now set to grow about eight per cent with lot more growth potential due to its young and large population, strong IT capability and talented diaspora, spoken language of international business and reform track record and momentum on its side,” he added. 

To questions, Sheard said Africa is a frontier economy with lots of unlocked potential including education, investment in human capital, institutions that needed to be focused on. “However, there is a lot of interest in India which is regarded as one of virgin markets by investors, and has GDP growth of 7.9 per cent but needs to develop a stronger and deeper Bond market,” he said, adding “The UK is in a 28-member European Union and is not exiting from the EU or Schengen countries, but if they want to, then there is a two-year negotiating period and there won’t be any panic.”

Earlier, Jayant Sinha, Union Minister of State for Finance, highlighted Government policies being geared up to meet challenges and opportunities where the first priority is need for macro-economic stability parameters. “We managed – in two years – to bring down fiscal deficit by following tight monetary policies and today India is recognised as a ‘Shining Star’ in the Global Economy. 

We are now working on structural reforms at industry level. While the rest of the world’s macro is headed downwards, ours is going upwards and we are in a position to take “sabke saath, sabka vikas” forward. Our economic strategy is to build India’s productive capacity or we will not be able to sustain speedy growth for decades, like China did in 30 years.”

“We are rejuvenating the rural economy where every village has roads, electricity, water, and farmers will be covered under schemes from sowing to harvest. About 60 per cent to 70 per cent of India lives in rural areas and very sweeping reforms are underway of public sector banks, tax system, besides massive increase in public investment (roads investment tripled to 

Rs 97,000 crores), irrigation (from Rs 15,000 crores to Rs 40,000 crores).”

To questions, the minister said the biggest problem is on equity side “as we don’t have sufficient, long-term equity capital which will make fixed income possible. Inflation is a challenge and we are concentrating on food prices –  though pulses is a problem as India’s consumption is 24 million tonnes against our production of 17 million tonnes and global supply of pulses is limited. We are maintaining a close eye on 22 essential commodities.”

To a question about NPAs in the banking system affecting debt mutual funds, Sinha declared “Our banking system is absolutely ‘Rock Solid’. We have taken steps to list startups in India. A challenge for us is that 95 per cent of India’s venture capital comes from outside India and we want to strengthen our domestic capital while building a robust and balanced asset class.”

About offshore rupee or ‘Masala bonds’ being announced but not picking up, he said “The RBI has requirements that are stringent and we are studying the matter.” CRISIL believes it is important to further develop the market for Masala bonds as it could ultimately help deepen the domestic corporate bond market.

Meanwhile, bond issuances and issuers have grown healthily to Rs 4.8 lakh crores over the past decade and bond markets provide 1/5th of outstanding funding to the corporate sector (growing gradually by one per cent annually), Pawan Agrawal, Chief Analytical Officer, CRISIL Ratings, said to a question “Are Stars Aligning for Growth of Corporate Bond Market in India?” – “The present is witnessing a conducive macroeconomic milieu including improving fiscal position of the Indian Government.

 Large funding needs for the infrastructure sector is estimated at Rs 4 lakh crore over five years, and constraints of the banking sector will limit ability to provide core funding. The RBI wants to limit banks in providing funding to large corporate. Ongoing innovation can help develop bond markets and new structures can attract more issuers to them; new vehicles can address structural constraints, while new instruments can expedite avenues for investors;  Corporate bond to GDP ratio nearly doubled five years after bankruptcy reforms; Secondary market trading and repo in corporate bonds remains low; attract more issuers to access the bond market; encourage innovation by credit enhancement mechanism towards a rupee offshore bond market by learning from China’s example. Implementation of Bankruptcy Code is going to be absolutely critical,” Agrawal said.

In a panel discussion, Alok Agrawal, Chief Financial Officer, reliance Industries Ltd, said that Rs 43 lakh crores was the need – over the present 23 lakh crores – for India’s sectors like power, roads, railways, urban infrastructure, irrigation etc.

Milind Barve, Managing Director, HDFC Mutual fund, said mutual funds reflect what underlying investors are looking for and the last two years witnessed 75 per cent of incremental funds being invested in corporate sector. “The Bond market is now beginning to expand and help deepen the market while giving investors the flavor of yield.

 The industry is looking more at investor bonds and getting more retail investment in bonds is a challenge to the bond investment industry. Building a significant size of debt market is needed as Indians are still not comfortable in buying anything for more than three years, rather than investing in seven to 10 year bonds,” Barve said.

Hemant Contractor, Chairman, PFRDA, said there is too much concentration of issuers and the Bond market needed more sectors coming in with lesser concentration of issuers. Cyril Shroff, Managing Partner, Cyril Amarchand Mangaldas, said for any Bond market to thrive, there had to be ‘clarity of rule of law’ enforcement mechanism as recovery could happen between three to 15 years. 

“We have large courts with lots of litigation, so justice delayed is justice denied. Banking tribunals are good. However, it’s too early to declare ‘nirvana’ on this and lots of institutional capacity building is required. The third joker in the pack is the Judiciary and unless it is brought into the dialogue, the recovery processes will be working at cross purposes. There is very little accountability in services provided by 3rd party fiduciaries.”

Chandan Sinha, Executive director, RBI, said the Government is committed on fiscal consolidation and surge for assets will be there. “Last fiscal witnessed mutual funds growth of 14 per cent and the new liquidity framework if Bond positive. We have a Repo market for bonds.”

“Options trading in the Indian market has witnessed rapid growth over last few years and accounts for over 78 per cent of approximately Rs 1.4 lakh crore daily volume on NSE,” B Gopakumar, CEO, Broking and Distribution Business, reliance Capital, said, adding “The share of Options volume in the last seven years has increased from 27 per cent in 2008 to 78 per cent today and we believe there is big demand for options trading through mobile which we intend to capitalise on. Going forward, securities business will compete on basis of technology rather than commission. 

Disruptive technologies will be a game-changer for retail investors. The broking industry has been embracing Internet and mobility, which has resulted in about 60 per cent of overall derivative volumes moving online and today approximately Rs 60,000 crore daily derivative volumes is transacted  online of which Rs 1,600 crore comes from mobile. 

“ Tick Pro uses 20 live robots for analytics and captures and processes pre-defined market watch for Nifty, Bank Nifty and other indices, while scanning over 25,000 contracts, 5,000 securities per second and identifying specific opportunities and allowing traders to take calculated decisions alongside getting options contracts filtered and listed for covered calls, covered put, long straddle with highest implied volatility.

Entertainment company Zee Digital Convergence Ltd., recently unveiled the new avatar of its DittoTV – a live TV platform that allows viewers to watch favourite programmes at time of broadcast. Positioned as ‘Desh Ka TV’, the platform is highlighting making live television available to every Indian via any device – phones, tablet or Personal Computer, at just Rs 20 per month.

Punit Goenka, MD and CEO Zee Entertainment Enterprises Ltd said the company has tied up with telecom player Idea Cellular, to offer its users of 3G and 4G internet packs a free monthly subscription with every recharge. 

Stating that the digital entertainment space in India is at the cusp of a strong phase of growth, he said “We aim to change the media landscape to suit the evolving media consumption preferences of consumers, where they control their watching television in a way that has not been possible before. This platform will help scale up this transformation by making it affordable for people across a wide economic spectrum.”

Archana Anand, Business Head, dittoTV, said that with dittoTV, a phone is all that is needed to ensure that no one ever misses their favourite programme again. Sashi Shankar, Chief Marketing Officer, Idea Cellular said, “With the rapid rollout of our 4G services and increased penetration of smartphones in the country, we are providing our customers an array of rich digital services to meet their demand for engaging apps and content.