Indian stock market has grown multi-fold in size than it was few years back but lack of retail participation is still a major concern. Indian Bond market is still in premature stage in comparison to its European and American counterparts.
In mature markets viz. American and European stock markets, there are varieties of trading instrument and investment product. Out of this debt market has emerged as largest market in terms of turnover. Exchanges have introduced many debt products which are now available in Indian markets but lack of retail participation often makes the products unsuccessful, adds the Assocham paper.
In order to overcome this, the government has taken many steps. Till few years back, corporate bond interest rates were fixed by Finance Ministry, which was done after consultation with RBI. Corporates were not allowed to issue bonds which have a D/E ratio of more than 2:1.
Adding to this they were charged a high stamp duty on secondary market transaction. But with reforms underway, Indian market has come a long way since then. Now there are many corporate bonds in Indian market but still has low retail participation.
Steps to Improve Retail participation:
• Bonds can be marketed like other traded financial instruments which can be easily available for retail participant. Till now retail participation can access debt market only through FMP’s (Fixed Maturity Plan) route.
• Government can push bonds by incentivizing and giving tax exemptions
• Introduction of Inflation indexed bonds, interest rate options etc. which can provide a good hedging options to investors during inflation.
• Banks can be asked to guarantee corporate bonds to increase confidence among investors.
• Investment cap on FII’s should be eased to increase foreign funds inflows.
• Government should launch programmes at school level to educate students about different avenues of investment.