Among other announcements towards deepening India’s corporate bond market, was the one to consider A-rated bonds as investment-grade securities. The finance minister in his Budget speech said that corporate bonds rated BBB or equivalent are investment grade. However, he recognised that in India the regulators only permit bonds with ‘AA’ rating as eligible for investment.
He then urged the concerned regulators to consider that it is time to move from AA- to A-grade ratings. This has relevance for all kinds of investment funds like pension funds, insurance funds and mutual funds; which invest in corporate bonds across different schemes. According to Lakshmi Iyer, head fixed income, Kotak Asset Management Co. Ltd, “The move will allow development of the corporate bond market in a more comprehensive manner, along with the proposal that 25% of the total borrowing of corporates be from the debt capital market. So far this segment was held captive largely by the banking sector. Now we can expect more corporates to come to the capital markets to raise funds and it gives access to investors like insurance companies and mutual funds.”
