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Presented By Group 2
Indian Debt Market - Pillars of the
Indian Economy
• The Debt Market plays a very critical role for
any growing economy which need to employ
a large amount of capital and resources for
achieving the desired industrial and financial
growth.
• The Indian debt market is today one of the
largest in Asia and includes securities issued
by the Government (Central & State
Governments), public sector undertakings,
other government bodies, financial
institutions, banks and corporates.
DEBT MARKET SIZE
• The Indian debt markets is the largest
segment of the Indian financial markets.
(Source RBI & CCIL)
• Outstanding issue size of Government
securities (Central and state) close to
Rs.13,474 billion (or Rs. 1,34,7435 crore)
• Secondary market turnover of around Rs
56,033 billion (in the previous year 2007)
DEBT MARKET SIZE
• INCREASED FROM $ 13 BILLION IN
2006 TO $ 20 BILLION IN 2007
• Non-government sector expected to grow
to $ 575 BILLION $ BY
2016,ACCORDING TO A GOLDMAN
SACHS REPORT
INTRODUCTION
• The Bond Market is the financial
market where debt securities or
bonds are traded.
• Those buying these bonds become
the creditors of the company.
• The most distinguishing feature of
these instruments is that the return
is fixed i.e. they are as close to being
risk free as possible, if not totally risk
free
Contd.
YTM = I+(F-M)/N
(F+M)/2
where
I = Annual interest Rate
F = Face value of bond
M = Market price of the bond
N = Number of years to maturity
.
• .
Types of Risk Bondholders
Face
• Interest Rate Risk
The risk of a bond changing in value when interest rates
change. This affects all bonds regardless of credit
quality, but is more severe for longer maturity bonds.
• Reinvestment Risk
The risk that investors will be unable to reinvest the
coupon payments at the coupon rate. This is more
important for high coupon bonds.
• Default (Credit) Risk
The risk that the firm will go bankrupt and not make all
payments to
bondholders.
• Other Risks: Inflation, Liquidity
Factors that affect valuations of debt
instruments
• Monetary policy
• Economic growth
• Fiscal policy
• Inflation
• Attractiveness of debt market
Wholesale Debt Market
• The Wholesale Debt Market (WDM)
segment of the Exchange commenced
operations on June 30, 1994. This provided
the first formal screen-based trading
facility for the debt market in the country.
• Provides trading facility G-secs, T-Bills,
Bonds issued by PSUs, commercial papers,
corporate debentures etc
WHOLESALE DEBT MARKET-
MAJOR PLAYERS
• BANKS
• FI’s
• RBI
• Primary Dealers
• Insurance Companies
• Provident Funds
• MF’s
• Corporates
• FII’s
TYPES OF TRADE IN THE WDM
1. OUTRIGHT SALE OR PURCHASE
2. REPO TRADE-Also known as Ready Forward Trade,
trade which is intended to be reversed at a later point
in time at a rate which will include interest component
for the remaining period, one participant sells the
securities to the other with an agreement to purchase
them back at a later date
• Advantages:-
Facilitates creation of liquidity by permitting the seller
to avail a specific sum of money in lieu of interest
payment
• The Indian Debt Market structure was hitherto that of a wholesale market
with participation largely restricted to the Banks, Institutions and the Primary
Dealers.
• The volumes in the Wholesale Debt Market over the past few years are
rapidly expanding showing attractive financial market with a strong potential
for retail participation.
• The Retail Debt Market in India is being created, thanks to the pioneering
efforts of the Exchanges and the market participants and the strong
leadership and guidance by SEBI, RBI and the Govt. of India.
Govt. Initiative
• The Hon'ble Union Finance Minister, while presenting the
Union Budget for 2006-2007, accepted the recommendations
of the High Level Committee on Corporate Bonds and
Securitization and made a significant policy announcement
about creation of a single, unified exchange-traded market for
corporate bonds in India.