Smt. C.H.

M
COLLEGE

SECOND YEAR FINANCIAL MARKETS

NAME : BHATIA DINESH M

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ROLL NO : 09

SUBJECT : DEBT MARKET

PROJECT ON : PLAYERS OF DEBT MARKET

SUBMITTED TO : DR. MANJU PATHAK

CONTENTS PAGE NO.

I HISTORY, DEFINITION,INTRODUCTION 04

II PERFORMING OF DEBT MARKET 05

III IMPORTANCE 06

IV EFFICIENCY 07

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V TWO SEGMENTS IN DEBT MARKET 08

VI MARKET STRUCTURE 09

VII (PLAYERS) ISSUER, INSTRUMENTS, INVESTORS 10

VIII MAIN INVESTORS 12

IX MAIN INSTRUMENTS 13

X CONCLUSION 14

XI BIBLIOGRAGRAPHY 15

HISTORY OF DEBT MARKET IN INDIA

Historically, India debt market has suffered a severe neglect of

policymakers in spite of the the fact that India has a fairly strong debt
preference among households for their financial investment portfolio.
The over-reliance on the financial intermediation of the public sector is
largely responsible for hindering growth of the debt market in India
which is the basic source of corporate financing in India.

Definition- INDIAN DEBT MARKET

The market for trading debt instruments.

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.

Debt Instruments are obligations of issuer of such instruments

as regards certain future cash flows representing Interest & Principal,
which the issuer would pay to the legal owner of the Instruments.
Generally debt instruments represent agreements to receive certain
cash flows as per the terms contained within the agreement. They can
also be said to be tradable form of loans.

Debt Instruments are of various types like Bonds, Debentures,

Commercial Papers, Certificates of Deposit, Government Securities (G
secs) etc. A brief detail about some of these investment options are
given below.

How is Indian Debt market performing?

The Indian debt market is poised on the verge of significant change to an

efficient, transparent and vivacious market with momentous retail participation. The
quickly expanding volumes in the wholesale debt market over the past few years offer the
promise of an immense and attractive financial market with a strong potential for retail
participation. By the efforts of the Exchanges and the market participants and the strong
leadership and guidance by SEBI, RBI and the Govt. of India the retail debt market in
India is being created.

The debt market provides returns commensurate to the risk, a

variety of instruments to match the risk and liquidity preferences of
investors, greater safety and lower volatility. It has a lot of potential to
grow by leaps and bounds in the near future. The debt market is vital
for a developing country like India. The economy has accelerated to a
higher growth path with annual GDP growth averaging nearly 9% since
last few years.

India has a chance to capitalize on a favorable domestic and

external environment to promote the domestic debt capital market.

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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.

The Reserve Bank of India regulates the government

securities market and money market while the corporate debt market
comes under the purview of the Securities Exchange and Board of
India (SEBI). SEBI has taken steps to revive the Indian debt market with
new regulations and processes. New regulations for debt securities
issued should boost the country's debt market.

What is the importance of the Debt Market to

the economy?
The key role of the debt markets in the Indian Economy stems from the
following reasons:

• Efficient mobilization and allocation of resources in the economy

• Financing the development activities of the Government
• Transmitting signals for implementation of the monetary policy
• Facilitating liquidity management in tune with overall short term
and long term objectives.

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.

The returns earned on the government securities are normally

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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.

What are the benefits of an efficient Debt

Market to the financial system and the
economy?
• Reduction in the borrowing cost of the Government and enable
mobilization of resources at a reasonable cost.
• Provide greater funding avenues to public-sector and private
sector projects and reduce the pressure on institutional
financing.
• Enhanced mobilization of resources by unlocking illiquid retail
investments like gold.
• Development of heterogeneity of market participants
• Assist in development of a reliable yield curve and the term
structure of interest rates.

Debt Market is divided into two segments:

a) Wholesale debt market
b) Retail debt market

Debt Market

Wholesale debt market Retail debt market

What is Wholesale debt market?

The Wholesale Debt Market segment deals in fixed income
securities and is fast gaining importance in an environment that has
high focus on equities.

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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.

The segment provides trading facilities for a variety of debt

instruments including Government Securities, Treasury Bills and Bonds
issued by Public Sector Undertakings or Corporate or Banks like
Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers,
Certificate of Deposits, Corporate Debentures, State Government
loans, SLR and Non-SLR Bonds issued by Financial Institutions, Units of
Mutual Funds and Securitized debt by banks, financial institutions,
corporate bodies, trusts and others.

Who are the most prominent investors in the

Wholesale Debt Market in India?
The Commercial Banks and the Financial Institutions are the
most prominent participants in the Wholesale Debt Market in India.
During the past few years, the investor base has been widened to
include Co-operative Banks, Investment Institutions, cash rich
corporates, Non-Banking Finance companies, Mutual Funds and high
net-worth individuals. FIIs have also been permitted to invest 100% of
their funds in the debt market, which is a significant increase from the
earlier limit of 30%. The government also allowed in 1998-99 the FIIs
to invest in T-bills with a view towards broadbasing the invest.

Who are the participants in the Retail Debt

Market?

The following are the main investor segments who could

participate in the Retail Debt Market:
• Mutual Funds
• Provident Funds
• Pension Funds
• Private Trusts.
• Religious Trusts and charitable organizations having large investible
corpus
• State Level and District Level Co-operative Banks
• Housing Finance Companies
• NBFCs and RNBCs
• Corporate Treasuries
• Hindu-Undivided Families (HUFs)
• Individual Investors

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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:

Recent evaluations and studies of DFI programs have found that

in some developing countries, DFI Programs have helped expand the
supply of long- and short-term credit to the private sector, thus
stimulating growth in that sector.

Following are some of main instruments:

Zero coupon bonds:

Bond issued at discount & repaid at face value. No periodical
interest is paid in case of zero coupon bonds. The difference between
issue price & redemption price represent the return to the holder. The
buyers of these bonds receives payment only at maturity period.

Convertible bonds:

A bond giving investor the option to convert the bond into

equity is at fixed conversion price.

Debentures:

Bonds issued by a company at a fixed rate of interest payable

half yearly on specific dates & principal amount repayable on
particulars dates on redemption of the papers or securities are known
as 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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