Debt Market Fair Pro
Debt Market Fair Pro
Debt Market Fair Pro
M
COLLEGE
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ROLL NO : 09
I HISTORY, DEFINITION,INTRODUCTION 04
III IMPORTANCE 06
IV EFFICIENCY 07
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V TWO SEGMENTS IN DEBT MARKET 08
VI MARKET STRUCTURE 09
IX MAIN INSTRUMENTS 13
X CONCLUSION 14
XI BIBLIOGRAGRAPHY 15
Introduction
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For a developing economy like India, debt markets are a crucial
source of funds. The debt market in India is amongst the largest in
Asia. It includes government securities – the largest component - and
bonds issued by public sector undertakings, other government bodies,
financial institutions, banks and companies. Debt markets are now
considered an alternative route to banking channels for finance.
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With the government reforms in place and ahead, according to a
recent analysis, India’s total debt market could grow roughly four-fold,
from about $400 billion or 45% of the GDP in 2006, to about $1.5
trillion, or some 55% of the GDP, by 2016. It is expected that the non-
government segment could grow nearly six-fold, from $100 billion
today to $575 billion in 2016.
Since the Government Securities are issued to meet the short term
and long term financial needs of the government, they are not only
used as instruments for raising debt, but have emerged as key
instruments for internal debt management, monetary management
and short term liquidity management.
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taken as the benchmark rates of returns and are referred to as the risk
free return in financial theory. The Risk Free rate obtained from the G-
sec rates are often used to price the other non-govt. securities in the
financial markets.
Debt Market
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The Wholesale Debt Market (WDM) segment of the Exchange
began its operations from June 30, 1994. This provided the first formal
screen-based trading facility for the debt market in the country.
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Market Micro Structure
It is necessary to understand microstructure of any market to
identify
processes, products and issues governing its structure and
development. In
this section a schematic presentation is attempted on the micro-
structure of
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Indian corporate debt market so that the issues are placed in a proper
perspective. Figure 1 gives a bird’s eye view of the Indian debt market
structure.
Players of market:
Issuers
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Indian Debt Market has almost all possible variety of issuers as is
the case in many developed markets. It has large private sector
corporate, public sector
undertakings (union as well as state), financial institutions, banks and
medium
and small companies: Thus the spectrum appears to be complete.
Figure 1,
delineates details on various classes of issuers. Two main classes
include private
sector corporates and banks.
Instruments
Figure 1 provides names of some of the more popular
instruments that have been issued. Till recently Indian debt market
was predominantly dominated by plain vanilla bonds. Over a period of
time, many other instruments have been issued.They include partly
convertible debentures (PCDs), fully convertible debentures (FCDs),
deep discount bonds (DDBs), zero coupon bonds (ZCBs), bonds with
warrants, floating rate notes (FRNs) / bonds and secured premium
notes (SPNs).The coupon rates mostly depend on tenure and credit
rating. However, these may not be strictly correlated in all cases. The
maturities of bonds generally vary between one year to ten years.
However, the median could be around four to five years. The maturity
period by and large depends on outlook on interest rates. In
expectation of falling interest rates environment, corporate, it is
observed, mostly go to shorter term instruments while the opposite is
true in case of possible hike in interest rates. For the past few years
interest rates have been falling and short end issues are on the rise.
This is one of the reasons that many corporate are reluctant to go for
public issue route and listing of their securities.
Investors
For the development of Corporate Debt Market / Fixed Income
Securities Market, it is necessary and sufficient to have a large as well
as diverse number of
sophisticated / institutional investors. Figure 1 lists some of the classes
of
investors that have been investing in the debt market. Institutional
Investors in
India are few in number and the variety also is limited. We have only
37 mutual
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funds, hardly five insurance companies till recently and there are no
pension
funds. Banks and financial institutions, by and large, do not take active
interest
in Corporate Debt Market. Investors with diverse expectations are a
precondition
for the development of corporate debt market. Diversity could be in
terms of
maturity needs as well as expectations on interest rates. The most
important
structural weakness in India is lack of large and diverse institutional
investors.
India has large number of retail investors; however, their expectations
are quite
contrary to market principles - risk and return. Most investors think and
perceive
that investments in bonds should provide them guarantee, repayment
of
principal and regular payment of coupons. Any delay/default causes
worries in
their minds. And sometimes these investors complain to regulators or
to the
government for non receipt of coupons or non-repayment of principal.
This type
of behaviour implies lack of understanding of the principles of the
capital market
on the part of the investors.
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Following are some of main investors:
RBI:
The Reserve Bank of India is the main regulator for the money
market. It controls and regulates the G-Secs market. Apart from its role
as a regulator, it has to simultaneously fulfill several other important
objectives, such as managing the borrowing programme for the
Government of India, controlling inflation, ensuring adequate credit at
reasonable costs to various sectors of the economy, managing the
foreign exchange reserves of the country and ensuring a stable
currency environment.
FIIS:
FIIs are among the major sources of liquidity for the Indian
markets. If FIIs are investing huge amounts in the Indian stock
exchanges then it reflects their high confidence and a healthy investor
sentiment for our markets. But with the current global financial turmoil
and a liquidity and credit freeze in the international markets, FIIs have
become net sellers (on a day to day basis). The entry of FIIs in India
has brought mixed consequences for our markets, on one hand they
have improved the breadth and depth of Indian markets and on the
other hand they have also become the major sources of speculation in
testing times like these.
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DFIs:
Convertible bonds:
Debentures:
Treasury bills:
Treasury bill market deals in treasury bill. They are issued by
central bank of India. These are also called government securities.
They are useful in managing short term liquidity. At present
government of India issues three types of bills namely: 91days,
182days, 364days. Treasury bills offers short term opportunity
generally upto 1 year. Such bills are issued for covering temporary
deficits. Treasury bill is very underdeveloped in India. Rate of interest
on all types of treasury bills is determined by market forces.
Commercial papers:
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This was introduce in India in 1990. The commercial papers can
be issued by authorized or listed company which has working capital of
not less than Rs. 50000000.The maturity period ranges from 15daysto
1year.
Conclusion:
From the whole above content I conclude that the Indian debt
market had not come in light till the present though it has better future
scenario in compare to equity market where risk factor is utmost. The
market has many benefits & can grow in to six folds through better
investment prospects.
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BIBLIOGRAPHY
GOOGLE.COM
information.com
Wikipedia.com
bseindia.com
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