At a time when the markets and economy are recuperating from the inflictions caused by the COVID-19 pandemic, investors remain in a grey zone. The silver lining has started showing itself but the source aftertaste left by the unprecedented economic disruption continues to linger. For those whose livelihoods were impacted by the pandemic, the arena of investing may still seem foreboding. Given these sentiments, corporate bonds that offer the best of both worlds – security and capital appreciation - may be a great investment vehicle to consider at this point in time. Here is why:

The uptick in the economy

As the economy nurses itself back to health after the damages wielded by the COVID-19 pandemic and the subsequent lockdowns, it is expected that the Reserve Bank of India will go back to embracing a policy normalization stance soon as economic growth inches forwards. What with the RBI expected to keep the rates stable in the near term and macroeconomic indicators suggesting stability being reinstated, the chances of bond prices exhibiting fluctuations is low and this can be a good time to foray into corporate bond investments.

The possibility of a wider spread

The end of the financial year is a time when corporate entities have to fulfill tax obligations which means many companies, including those which have solid credit ratings is likely to issue a greater number of bonds to raise capital. Bond yields are expected to spike at this time of the year and by investing in them now, you may reap the benefits of higher yield. Also what with the economy improving, there is a good chance that more corporate will be bestowed with improved ratings which means that investors will have more options to choose from in terms of quality corporate bonds.

Less chances of default

India already have started a massive vaccination drive and with the falling COVID-19 cases and fatality rates, it indicates that the worst may be over, experts predict that the subsequent months will augur well for businesses and corporates as they accelerate their recovery processes. This means that their repayment abilities are likely to receive a boost and the chances of the issuer defaulting on coupon payments will be less.

Measures adopted by the government

The government has been striving to strengthen the corporate bond markets for a while and the development of a permanent institutional framework is in the pipeline which will provide an impetus to the market in India.

In fact, Union Finance Minister Nirmala Sitharaman stated in her 2021 Budget speech: “To instill confidence among the 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.” The implementation of the proposed framework could attract more issuers to the corporate bond market which may be highly advantageous for investors.

What’s more the globally renowned credit rating agency CRISIL has postulated that the supply of corporate bonds in the Indian domestic market is expected to double to Rs 65-70 lakh crore by fiscal 2025. The firm also appreciated the efforts of the government and SEBI for propelling the corporate bond market in India towards maturity.

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