Individuals seeking yield in India snap up risky firms’ debt

Individual investors in India are rushing to buy corporate bonds from weaker borrowers, taking bigger risks to boost returns in a debt market dominated by institutional investors.

Company note sales to retail investors have more than doubled from a year earlier to 67.2 billion rupees ($898 million) so far in 2021. A further 31 billion rupees of bonds that individuals can buy into are being marketed right now, and another 50 billion rupees of such debt is in the pipeline including a deal from India Grid Trust announced late last week.

Many savers desperate for yield are likely to jump at the chance to buy such notes. That’s because they are struggling with persistent inflation pressure even as bank deposit rates have dropped to the lowest in more than a decade.

Policy makers in India have long sought to deepen the local corporate bond market, as one of the world’s worst bad debt piles makes banks reluctant to lend and institutions avoid all but the highest-rated notes. But public debt offerings that individuals can take part in only totaled 71 billion rupees last year, equivalent to 0.8 per cent sold by private placement to institutions.
The pickings for retail investors also tend to be riskier: while about 66 per cent of local-currency notes privately placed to professional investors so far in 2021 carry top rankings, only one of the nine issues being marketed or in the pipeline has a AAA rating.