A Microstructure Study of Indian Corporate Bond Market: A Review

Abstract

This Review study explores various dimensions of the Indian capital market, encompassing both equity and bond markets. It delves into the influence of equity market factors, macroeconomic variables, and corporate bond market growth on the overall financial landscape. The relationship between equity market returns, equity market volatility (VIX), and the rupee-dollar exchange rate on bond yields. They highlight that increasing volatility in the equity market leads to a higher demand for fixed income securities, subsequently reducing bond returns. The underscores the significance of a robust corporate bond market for financial system stability, credit availability, and mitigating corporate sector crises. It reviews the growth of the Indian corporate bond market and its implications for monetary, fiscal, and economic variables. The results indicate that a comprehensive corporate bond market does not exhibit a significant positive or negative association with these variables. However, GDP emerges as a crucial factor for India's bond market development, particularly in terms of foreign participants. Lastly, the influence of macroeconomic variables on the Indian corporate bond market over a 23-year period. They reveal a significant correlation between corporate bond market issuance and foreign exchange reserves. Through multiple regression analysis, they found that all selected variables, except GDP and trade openness, significantly explain the volumes of corporate bonds. Collectively, their findings contribute to a comprehensive understanding of the interplay between equity market dynamics, corporate bond market growth, and macroeconomic factors in the Indian capital market. The study provides valuable insights for policymakers and investors, aiding in informed decision-making regarding investment strategies, market stability, and economic growth.