INTODUCTION

A well-developed domestic capital market consists of the equity market and the bond market.
A well-developed bond market with a significant role for the corporate bond market segment
is considered important for an efficient capital market. A vibrant corporate bond market
ensures that funds flow towards productive investments and market forces exerts competitive
pressures on lending to the private sector.
While India boasts of a world-class equity market its bond market is still underdeveloped and
is dominated by the government bond market. The value of outstanding government bonds in
India was 39.5% of GDP as of 2010 and compares favourably with other Asian countries
such as Chin (27.6%) and South Korea (47.2%). The value of corporate bond outstanding in
India however was only 1.6% of GDP compared to Malaysia (27%) and South Korea (37.8%)
at the end of 2010.( Raghavan, 2012)

A financial marketplace where debt instruments, primarily bonds, are bought and sold is
called a bond market. The dealings in a bond market are limited to a small group of
participants. Contrary to stock or commodities trading, the bond market (also known as the
debt market) lacks a central exchange. (www.economywatch.com)

In 2012, the size of the Indian bond market was approximately equivalent to 27% of the
Chinese bond market and 69% of the Korean bond market.
Towards the end of 2012, the total volume of outstanding bonds accounted for roughly USD
1 trillion, reflecting an overall increase of 24% from the previous year which both
government securities and corporate bonds contributed. Government securities comprise 79%
of the total amount of outstanding bonds, a larger percentage than government securities in
China, which is 73%, and in Korea, which accounts for only 39%. Last year, the amount of
outstanding government securities increased more steeply, at a growth rate of 23% and
reaching USD 792 billion, compared to the average rate of 18% per year over the period
spanning from 2000 to 2012. (www.asifma.org)
A corporate bond is a bond issue by a corporation to raise money effectively in order to
expand its business. The term is usually applied to longer-term debt instruments, generally
with a maturity date falling at least a year after their issue date. Sometimes, the term
"corporate bonds" is used to include all bonds except those issued by governments in their
own currencies. However, the bonds of local authorities and supranational organizations do
not fit in either category. Corporate bonds are often listed on major exchanges (bonds there
are called "listed" bonds) and ECNs, and the coupon (i.e. interest payment) is usually taxable.
(Chakrabarti, 2016)
Corporate, governments and individuals rely on various sources of funding to meet their
capital requirements. Specifically, corporate use either internal accruals or external sources of
capital to finance their business. Funds are raised from external sources either in the form of
equity or debt or hybrid instruments that combine the features of both debt and equity. The
capital raised by companies through debt instruments is broadly referred to as corporate debt.
Corporate debt consists of broadly two types bank borrowings and bond. Corporates borrow
from banks and other financial institutions for various business purposes and for varying
durations through non-standardized and negotiated bank loans. (Chaudhari and Raje, 2014)
The debt market in India comprises broadly two segments, viz., Government Securities
Market and Corporate Debt Market. The latter is further classified as Market for PSU Bonds
and Private Sector Bonds. (Raju and Bhutni, 2004)

Government bond markets play a crucial role in the transmission mechanism of monetary
policy in EMU. Since 1999, the adoption of the common currency by 11 countries became
the vehicle to exercise common effective monetary and fiscal policies, avoiding the
consequences of asymmetrical shocks. Over the first years of Euro-zone life, previous studies
provide evidence that the adoption of euro currency leads to government bond yields
convergence. This convergence was driven by expectations of the euro introduction, by the
consequent elimination of the global risk and asymmetrical shocks, by allowing cheaper
access to debt financing with less uncertainty in financial markets and by fulfilling the vision
of European integration. (Christiansen, 2007)

What is Bond Market?

The debt market in India consists of mainly two categoriesthe government securities or the
G-Sec markets comprising central government and state government securities, and the
corporate bond market. In order to finance its fiscal deficit, the government floats fixed
income instruments and borrows money by issuing G-Secs that are sovereign securities
issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The
corporate bond market (also known as the non-Gsec market) consists of financial institutions
(FI) bonds, public sector units (PSU) bonds, and corporate bonds/debentures.
The G-secs are the most dominant category of debt markets and form a major part of the
market in terms of outstanding issues, market capitalization, and trading value. It sets a
benchmark for the rest of the market. The market for debt derivatives have not yet developed
appreciably, although a market for OTC derivatives in interest rate products exists.
The exchange-traded interest rate derivatives that were introduced recently are debt
instruments; this market is currently small, and would gradually pick up in the years to come.
(www.nseindia.com)
The bond market also called the debt market or credit market is a financial market in
which the participants are provided with the issuance and trading of debt securities. The bond
market primarily includes government-issued securities and corporate debt securities,
facilitating the transfer of capital from savers to the issuers or organizations requiring capital
for government projects, business expansions and ongoing operations.

In the bond market, participants can issue new debt in the market called
the primary market or trade debt securities in the market called
the secondary market. These products are typically in the form of bonds,
but they may also come in the form of bills and notes. The goal of the
bond market is to provide long-term financial aid and funding for public
and private projects and expenditures. (www.investopedia.com)

Types of Bond Markets

The general bond market can be classified into corporate bonds, government and agency
bonds, municipal bonds, mortgage-backed bonds, asset-backed bonds, and collateralized debt
obligations.

Corporate Bond

Corporations provide corporate bonds to raise money for different reasons, such as financing
ongoing operations or expanding businesses. The term "corporate bond" is usually used for
longer-term debt instruments that provide a maturity of at least one year.

Government Bonds
National governments issue government bonds and entice buyers by providing the face
value on the agreed maturity date with periodic interest payments. This characteristic makes
government bonds attractive for conservative investors.

Municipal Bonds

Local governments and their agencies, states, cities, special-purpose districts, public utility
districts, school districts, publicly owned airports and seaports, and other government-owned
entities issue municipal bonds to fund their projects.

Mortgage Bonds

Pooled mortgages on real estate properties provide mortgage bonds. Mortgage bonds are
locked in by the pledge of particular assets. They pay monthly, quarterly or semi-annual
interest.

Bond market participants

Bond market participants are similar to participants in most financial markets and are
essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.

Participants include:

Institutional investors

Governments

Traders

Individuals

Because of the specificity of individual bond issues, and the lack of liquidity in many smaller
issues, the majority of outstanding bonds are held by institutions like pension funds, banks
and mutual funds. In the United States, approximately 10% of the market is held by private
individuals.
REVIEW OF LITERATURE

Nowman(2001) In this paper, the Box method of Barone-Adesi et-al (1997) is applied to
value default free bonds and contingent claims starting from theCKLSmodel. Using the Box
method and historical interbank estimates of the CKLS model by Episcopos (1999) for
Australia, Belgium, Germany, Japan, Netherlands, New Zealand and Switzerland, It is
calculated implied bond and contingent claim prices for these currencies.Its results indicate
that is a crucial factor in determining bond and hence contingent claim prices. Where market
is close to a standard, both the bond and contingent claim prices for market and standard are
close to each other. In summary both default free bonds and callable and puttable bond prices
are sensitive to the underlying interest rate model used in international interbank markets.

Raju, Bhutni and Sahay(2004)The study is basically explorative in nature. No

empirical study has been carried out. However, several practitioners, market participants,
academicians and regulators have held threadbare discussions. A few of those
recommendations are mentioned in this paper. The paper benefited from the interaction that
we had with all these people. Many of the recommendations, if implemented in Indian
Corporate Debt Market, are likely to make it more mature. Based on a detailed analysis of
these identified problems, this paper recommends certain steps, which can help to activate the
corporate debt market and to become an important source of finance for the economy.

Dunne(2007) A relatively straightforward proposal is made here that has the potential to
reduce market segmentation. It is argued that, this would improve the kind of transparency
that matters for investor protection in the spirit of MiFID. However, it is admitted that this
would rely on providing sufficient motivation to primary dealers to provide liquidity to
investors by widening access to the inter-dealer segment of the market.
It is argued that, European sovereign issuers have the power and influence to achieve this
outcome.The segmented nature of the euro-denominated sovereign bond markets provides an
immediate obstacle to the application of MiFID-style transparency initiatives. Strategies for
the distribution of bonds through primary dealers have encouraged clientele-building and
opaque dealer-to-customer trading modalities.
Juan(2008) This drawback could be alleviated if there existed instruments to hedge foreign
exchange risk, but the market for these instruments in Kuwait is in the early stages of
development. Although a market for foreign exchange swaps exists, the market is mostly
limited to instruments with three-month maturities and lacks liquidity
This note has argued that Kuwait needs to deepen further its financial markets in order to
expand the range of financing opportunities for the private sector. Upgrading the countrys
financial system should be one of the main ingredients in the authorities overall strategy for
diversifying the Kuwaiti economy away from oil activities.

Wells and Lotte(2008)India has developed a number of unique features in its bond market
for example its CBLO system and the successful electronic trading platformwhich could
usefully be studied by its neighbours, many of which suffer from limited repo markets or
which have (like India) tried unsuccessfully to move bonds on to electronic platforms.
Bond market associations are also less well-developed than their equity market counterparts,
which benefit from international gatherings and regional associations like the World
Federation of Exchanges. The Asian Bond Markets Initiative could play an instrumental role
in helping address this shortfall.At the same time, in the development of its corporate bond
market, India can no doubt learn from its neighbours disclosure policies, bankruptcy
processes, consolidation of government benchmark issues, and regulatory structures.

Abad, Chuli and Marta(2009)The most important results of the paper are the following.
First, the results show that apart from a set of world (regional) instruments, a set of local
instruments are also able to predict local bond returns. This result suggests incomplete
integration. Second, we find that EMU and US Government bond markets present a low
degree of integration, indicating that it is domestic rather than international risk factors that
mostly drive the evolution of government debt returns in EMU countries.Third, the results
show that the degree of integration with the US and German bond markets clearly differs
between euro and non-euro participating countries. Government bond returns of non-EMU
countries are more influenced by world risk factors.

Banerji, Gangopadhyay and Shah(2011)In this paper, I have tried to measure lack of
depth in the market for financing which dampens investment and growth of firms, especially
belonging to small and medium sectors. Information asymmetry, liquidity and lack of market
making are the greatest impediments to development of corporate bond markets which might
get stuck in the low level equilibrium. I made an attempt to analyze these issues and provided
some meaningful recommendation to eliminate these problems.A vibrant bond market for the
private firms and corporation can ease financing constraints both in terms of cost of funds as
well as ease of access to funds.

Chen and Gong(2012)This paper gives consideration combining Chinese stock market
and bond market and analyzes the dynamic trend and interactive relationship between stock
market and bond market from perspective of market information shocks. First, the market
information is decomposed into public information and private information and the dynamic
relationship of different types of information shocks on Chinas stock market and bond
market is investigated. Then bivariate GARCH model is established and different information
shock volatility is introduced to investigate its effects in the market dynamics and associated
relationships.

Stracca(2013)The main result of this study is that euro debt crisis events which led to large
increases in the spread between Italian and Spanish vs. German government bond yields have
determined a sizeable rise in global risk aversion and a sell-off of equities. Another clear
effect of crisis events is a depreciation of the euro across the board, while the impact on bond
yields is generally less clear-cut. However, I find that the government bond market in key
advanced countries (most notably the UK and the US) acts as a safe haven in the wake of
crisis events. I also look at the possible transmission channels and find some pre-crisis
country characteristics to matter for the effect of crisis events on non-euro area countries.

Abad and Chuli(2013)The integration of European government bond markets has been
the subject of various recent analyses in the literature given the convergence process that was
set in motion with the launch of the EMU and the reversal of financial integration during the
sovereign debt market crisis. Our paper contributes to this literature by providing an
exhaustive analysis of the impact of unexpected monetary policy announcements made by the
ECB and the FOMC not only on European government bond returns but also on volatility and
correlation. This analysis allows us to provide a more comprehensive picture of the effect of
surprise monetary policy announcements on the behaviour of European government bond
markets.

Chaudhari(2014)There have been numerous academic and government of India reports

dedicated to the issue and the possible recommendations have been accepted by one and all.
However, our focus below is to harp on a few recommendations which we believe are crucial
in the entire reform process. While a few of them are independent, in light of recent
developments, the others represent critical proposals that have not received the required
amount of policy attention in recent times.Though it is reasonable to infer that once a logical
set of recommendations are implemented the problems plaguing corporate debt in India
would be eliminated paving the way for a vibrant bond market, these are difficult issues.

Chtourou(2014) This paper modelled and provided an empirical evidence for the risk of
the European debt and its fragility by computing its probability.
The Eurozone crises have led to a number of policy initiatives by the European fiscal
authorities to improve the fiscal discipline within the Eurozone. At the same time, the ECB
has used a series of non-standard policy measures to put pressure on the financial system.
But, its becoming increasingly apparent that theres no short-term solution to the European
debt crisis. For that, some economists suggest the ramification of the European banking
system, a consistent growth strategy, and specific solutions to the government debt crises to
solve the crisis in Europe.

Hale(2014) These findings are novel and have important implications. Because the number
of banks that rely on bond financing continues to grow, our findings indicate that financial
intermediation through banks will become increasingly interlinked with the intermediation
performed through financial markets. Moreover, a policy push toward longer-term bank
financing is likely to further increase banks reliance on the bond market, leading to
unintended consequences of increasing the exposure of bank-dependent borrowers to the
bond market shocks.
Herzog(2014) In this paper I find a new bond market theory for euro area sovereign debt markets under stress. I find that
bond markets are different in the euro area because of the institutional issues of the EMU. First, member countries have fiscal
authority without monetary authority. Thus, euro zone member states cannot guarantee payment of bondholders in all cases. Second,
a monetary union reduces the incentive to maintain sustainable finances despite the existence of the no-bailout clause and the
Stability and Growth Pact.The model offers a reasonable explanation of the recent events during the
sovereign debt crisis in the euro area. We present the linkages with a graphical approach and
analyse the pricing effects. We identified the key determinants that trigger the switch of bond
markets to both crises mode and animal spirits.

Jong and Hongwen(2014)Importance is being given to the role bond issuers play in the
real economy rather than to their presence on the capital markets. By this more attention is
paid to the capacity to take on debt and to eventually reimburse, which is a different
appreciation of what the market stands for. The core of the question is to what degree entities
participate in the market equilibrium pricing process. There are signs that in recent years
investment practice is starting to adapt. An increasing number of alternative smart indices are
being developed along with investment products that are based on them. Those innovations
are destined for equity investing mainly in todays markets. This paper adds arguments why it
should apply to fixed-income investing equally well.

Philippas(2014)The empirical results indicate that countries with EMU small economies
are more affected by the movements of the euro exchange rates versus US dollar and the
short-term rates in the interbank market. By looking long run coefficients, some EMU
members such as Germany and The Netherlands, show a different cointegrating behaviour
compared to the rest of countries. Our analysis indicates that there is a nominal convergence
in sovereign EMU bond markets introduced by the adoption of common currency but is not
enough to convince investors about the real economic convergence of Euro-zone members.
The convergence of EMU fiscal policies is necessary in order to convince investors of an
economic convergence of member countries. Moreover, common monetary policy must be
accompanied with political and financial convergence or else; it is only a neutral change in
real economy with occasional expectations shifts.

Sengupta and Anand(2014)It follows from the discussion that during 1980-90s South
African debt market was facing issues, which were not much different from what the Indian
debt market is facing today. These include large fiscal deficit, a debt market dominated by
government bonds, high interest rates and restrictive investment mandates imposed on
financial institutions. The market and policy level reforms adopted by South Africa addressed
these issues and resulted in the emergence of an efficient debt market.Clearly, the market
development for corporate bonds in India is likely to be a gradual process as experienced in
other countries. Regulators as well as market participants need to play a proactive role. It is
important to understand whether the regulators have sufficient willingness to shift away from
a loan-driven economy and also whether the corporations themselves have strong incentives
to help develop a deep bond market.

Thukral and Sridhar(2015)Corporate bond markets in India, although steadily

progressing is still impeded by the nature of the market itself. While the importance of
developing a strong and liquid market has been realized and necessary steps have been taken
to implement some of the recommendations by the Expert Committee, the response solicited
has not quite been as expected. Although India has made significant headways into
progressing into the corporate debt market, it would be quite difficult to overcome the
structural difficulties such as transparency, technology and depth of the capital markets that
face the economy owing to macro-economic factors.

Chakrabarti(2016)In the article he writes, the regulators have taken proactive steps and
provided the market with tools of risk management. Efforts are on to enable wider
participation the market and create scope for market making. However, Development of debt
market is not a one-off affair. We have been able to foster the development of a deep and
liquid G-Sec market in India; and there are issues that need continued coordination and
cooperation between the market participants and the regulators to develop private bond
market for making Indias bond market truly global debt market. India is lagging behind in
respect of private bond market capitalisation as a percentage of gross development product.
Since 2005, Government of India, Reserve Bank of India and Securities Exchange Board of
India have initiated several measures to develop the corporate debt market in India.

Fleming, Saggar and Sareen(2016)In this, the Indian government bond market is
described with a view to better understanding its functioning, its evolution, and the drivers of
certain aspects of the primary and secondary markets. We identify several important features
of the primary market, including the preponderance of auctions of existing as opposed to new
securities and the use of both uniform and discriminatory auctions. Perhaps most interesting
for the primary market, we discuss the unusual auction mechanism whereby underwriting
obligations are allocated to primary dealers based on the results of a first-stage auction. Daily
trading volume in particular has increase sharply in recent years, Moreover, an increasing
share of the increasing daily trading volume has migrated to the NDSOMsub-market at the
expense of the OTC brokered sub-market.

Snigdha(2016)India's bond markets are at crossroads today. Drastic changes are required
for making bond markets healthy component of financial system. This will go a long way in
easing pressure from banking system of the country. Efficient bankruptcy laws, tougher laws
for opportunists, easing norms for long term foreign investors specially institutional
investors, consolidation of government securities will propel the bond markets to newer
heights same as equity markets.Specific factors such as size, access, efficiency and stability
of bond markets are no less important in influencing the activity in bond markets. Firm level
specific factors namely growth, recognition, size, leverage, profitability, cash flows and so on
too determine the dynamism of bond markets.
RESEARCH METHODOLOGY
Research methodology in a way is a written game plan for conducting research. Research
methodology has many dimensions. It includes not only the research methods but also
considers the logic behind the methods used in the context of the study and complains why
only a particular method of technique has been used. The basic task of research is to generate
accurate information for use in decision making. Research can be defined as the systematic
and objective process of gathering, recording and analyzing data for aid in making business
decisions.

As the project involves analyzing of financial structure, the research is exploratory in nature,
covering financial parameters and come of the important ratios to carry out research.

Research Design: The research design refers to the overall strategy that you choose to
integrate the different components of the study in a coherent and logical way, thereby,
ensuring you will effectively address the research problem; it constitutes the blueprint for the
collection, measurement, and analysis of data. The research problem determines the type of
design you should use. The function of a research design is to ensure that the evidence
obtained enables you to effectively address the research problem logically and as
unambiguously as possible.

Descriptive Research Design

Descriptive research designs help provide answers to the questions of who, what, when,
where, and how associated with a particular research problem; a descriptive study cannot
conclusively ascertain answers to why. Descriptive research is used to obtain information
concerning the current status of the phenomena and to describe what exists with respect to
variables or conditions in a situation.

Data Collection Method:

The data will be collected using secondary sources.

Secondary Data When an investigator uses the data that has been already collected by
others is called secondary data.

The secondary data could be collected from Journals, Reports and Various Publications. The
advantages of secondary data can be economical, both in the term of money and time spent.
The researcher of the reporter also did the same and collected secondary from various internet
sites like journals, research papers, books, slideshare.com and many more
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