New framework for buying corporate bonds

In a bid to introduce more liquidity in the fledgling corporate bond market, the Union Finance Minister announced the creation of a permanent institutional framework.

"To instil confidence amongst participants in the corporate bond market during times of stress and to generally enhance secondary market liquidity, it is proposed to create a permanent institutional framework. The proposed body would purchase investment grade debt securities both in stressed and normal times and help in the development of the bond market,” Finance Minister Nirmala Sitharaman, said.

The details of the framework will be the key to its success as this is not the first time the government has talked about this issue. Foreign portfolio investors (FPI) have used up just 25 per cent of their Rs 5.42 trillion limit in this space.

“The proposed institutional framework for corporate bonds is a concrete step taken in this budget. In times of stress, if there is a permanent institutional framework to buy bonds and infuse liquidity in the market, it may take away a lot of uncertainty and stress from the markets. However, finer details remain to be seen about mechanisms for the same," said Pankaj Agrawal, Director at A K Capital. Furthermore, “the tax-efficient zerocoupon bonds notified as Infrastructure Debt Funds may be further useful for funding of infrastructure. The markets will certainly be looking forward to details of the same,” Agrawal added.