India Economy

Wholesale debt market yet to reach 2003-04 levels

Arvind Jayaram | Updated on November 16, 2017


The NSE's wholesale debt market has shrunk considerably since its all-time peak in 2003-04. The WDM segment saw record net traded value of Rs 13,16,096 crore in 2003-04. In contrast, this value stood at just Rs 6,33,178crore during 2011-12, a 51 per cent decline.

Nevertheless, performance has been improving over the last seven years. Net traded value declined sharply after 2003-04, tanking by over 83 per cent till 2006-07. Thereafter, it has been rising every year, but is still nowhere close to the all-time high.

The average size of the daily trades in the WDM segment witnessed a similar trend, declining by nearly 80 per cent between 2003-04 and 2006-07. Since then, it has recovered marginally, rising by 17 per cent to Rs 2,649.28 crore in 2011-12 vis-à-vis the previous year. This is still 40 per cent less than the level seen in 2003-04.

Trading volumes

In the case of trading volumes, there was a sustained decline between 2003-04 and 2008-09, with a 90 per cent reduction in the number of transactions. The trading volumes have since risen marginally. The number of trades that took place in 2011-12 was 87 per cent lower than the volumes seen in 2003-04, though it was up 15 per cent vis-à-vis 2010-11.

However, the average size of trades in 2011-12 was nearly four-fold higher than in 2003-04. But this was 1.6 per cent lower than the all-time high seen in the previous year.

The Indian bond market is small even compared to other Asian countries, with the lack of liquidity being the biggest constraint. Daily trading volumes are less than 1 per cent of outstanding bonds.

The big investors

Furthermore, the bulk of the outstanding stock is government bonds, where interest rates are fixed. With retail participation minimal, banks and insurance companies are the big investors, holding nearly 70 per cent of outstanding gilts.

This has created problems: Insurance companies are long-term holders of bonds and banks don't have to trade either, as they have shifted a sizeable portion of their holdings to the held-to-maturity (HTM) category.

Corporates, on the other hand, seem to prefer private placement of debt over a public float. The market depth is further hampered by the fact that investors like to play it safe, with appetite restricted to top-rated companies.

Published on May 19, 2012

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