IGI Logo

CareEdge Rating in its report ‘Structural Shifts in Debt Market: Emerging Themes’ has cautioned for the need to strengthened India’s debt capital markets to adequately finance the country’s long-term growth ambitions, even as rising global volatility, sovereign debt stress and risk repricing reshape capital flows worldwide.

It highlighted that India’s corporate bond market continues to lag global peers in size, liquidity and investor diversity, despite steady growth in issuances over the past decade. India’s corporate bond market remains stuck at nearly 16% of GDP, far below countries such as China, Malaysia and South Korea, highlighting the urgent need for policy measures to deepen the market and broaden participation beyond banks and highly rated issuers.

CareEdge Ratings notes that India’s corporate bond market has grown from USD 360 billion in 2016 to USD 645 billion in 2025, although the corporate debt-to-GDP ratio remained stable at 16-17%. It significantly lags peers such as China, Malaysia and South Korea, signifying headroom for market deepening.

Mehul Pandya, MD & Group CEO, CareEdge said, “India's aspiration of becoming a USD 30 trillion economy by 2047 would require deeper and more developed debt markets to finance long-term growth. To encourage a wider investor base in the Indian debt capital market, there is a need to build greater awareness, relax investment mandates for retirement funds and insurance companies, and encourage higher foreign participation. Additionally, improving secondary market liquidity through market-making mechanisms, bond derivatives and bond ETFs remains a key priority for market development.”

Indian Debt Capital Market — Can it Finance India’s Growth?

According to CareEdge ratings, India’s corporate bond market remains underpenetrated at 16% of GDP, compared to Japan (17%), Singapore (27%), China (36%), USA (40%), Malaysia (55%), Korea (76%). India’s outstanding corporate bonds have grown steadily at an 11.4% CAGR to reach nearly Rs. 59 lakh crore. However, issuances continue to remain concentrated, with the BFSI sector accounting for over 60% of the market and AAA and AA-rated papers commanding more than 85% share.

CareEdge Ratings in its report notes that the investor profile also remains largely domestic, with foreign portfolio investors holding only around 5.4% of outstanding bonds, well below the regulatory limit of 15%. Secondary market liquidity continues to remain shallow, with average daily turnover at just 0.2% of outstanding bonds compared with 4.7% in the US. At the same time, trades settled in the secondary market crossed 28 lakhs in FY26, while declining average trade values indicate gradual growth in retail participation.

Highlighting growth opportunities and measures to deepen the market, CareEdge Ratings notes that the rating performance of AAA, AA and A-rated bonds has improved in recent years, supported by high stability and low default rates. As a result, A-category rated papers, offering attractive yields, present a healthy risk-reward opportunity for investors. It highlighted the need for proactive regulatory measures to deepen the bond market, including reducing the tax burden and rationalising the tax structure on debt products to bring them at par with other asset classes. Other measures include broadening the issuer base by strengthening the market borrowing framework, incentivising banks to issue mid-tenor bonds, and improving access for infrastructure entities through partial credit enhancement and other mechanisms.

Global Debt at Crossroads — Repricing Risk in a Fragmented World

CareEdge Ratings notes that global macro conditions are currently marked by elevated policy and geopolitical uncertainty. The world's uncertainty indices are at their highest level in the past 15 years. This is accompanied by a confluence of moderating growth, inflationary pressures and rising sovereign debt levels. Global growth is expected to moderate to 2-3% in 2026. At the same time, inflation is likely to be sticky at ~4% with a potential to go up to 5-6% in stress scenarios. Overall, global debt remains high, at 246% of GDP.

CareEdge Ratings notes that sovereign debt as measured in general government gross debt or GGG debt to GDP ratio is rising. It is projected to exceed 100% of GDP, or the peak seen during the COVID pandemic, by the end of the current decade, i.e. 2030. More importantly, the interest burden is rising sharply across advanced economies, raising affordability-related risks. It highlights that sovereign debt ownership is shifting away from central banks as their share is increasingly picked up by price-sensitive investors such as households, foreign investors, and hedge funds, exposing such debt to the risk of higher volatility. Similarly, sovereigns have increasingly raised debt with shorter maturities over the past 5 years, exposing them to a higher risk of refinancing, especially in the current environment of high uncertainty. Accordingly, the debt markets are shifting from policy-driven to market-driven.

It highlights that the global non-financial corporate debt market has steadily grown to around USD 100 trillion. However, it has broadly remained stable relative to GDP. Interestingly, the sectoral trend of corporate debt is changing. Traditional sectors, i.e., Industrials and Utilities, have a combined share of around 60 per cent. The technology sector, with a smaller share of just 11%, is growing at the fastest pace, driven by an AI-led capex cycle that supports issuance.

CareEdge Ratings notes that India’s external commercial borrowings (ECBs) has doubled since 2011. In terms of issuers, the share of NBFCs has risen to 40% from 25% over the past 5 years, while the share of infrastructure sectors has remained largely stable at around 30%. For ECBs, GIFT City is emerging as a major issuance hub, accounting for two-thirds of new issuances. It has also emerged as the major hub for listing foreign current debt. India is gradually integrating with global capital markets and GIFT IFSC is playing a pivotal role in developing the entire ecosystem.

“Sovereign yields are rising in response to elevated inflation and increasing risk concerns. Tighter financial conditions and geopolitical tensions are likely to influence future debt and market stability. Corporate yields have followed the trend; however, the increase has been relatively modest due to narrowing spreads. Therefore, the real reset is not in debt levels but in the pricing of risk”, added Mr. Pandya.

Above views are of the author and not of the website kindly read disclaimer