By Mr. Abhay Ray 
Introduction
When it comes to the bond market, India still has a long way to go compared to countries like the US and China. Corporate bonds make up a relatively small share, and retail participation is still limited. So, what are those issues holding back India’s bond market? Are they regulations, lack of awareness, or just investor habits? As the country looks ahead to the next phase of financial evolution, the role of bonds in capital formation and wealth creation will be critical.
Kotak’s Lakshmi Iyer Compares Bonds to Lemon Water
Kotak Mahindra’s Lakshmi Iyer, CEO Investment & Strategy at Kotak Alternate Asset Managers, shared her views on the road ahead for India’s bond market. She gave her perspective on everything from policy reforms and rate cuts to why younger investors should start paying more attention to bonds and what needs to change to make that happen.
Kotak Mahindra’s Lakshmi Iyer recently described bonds as “lemon water” a refreshing, reliable choice that works in every season. Just as lemon water is comforting year-round, bonds offer consistent, stable returns, making them an ideal investment during both market booms and downturns. In today’s uncertain financial landscape, where volatility is common, bonds remain a cornerstone for risk-averse investors seeking predictability and capital preservation. Whether facing inflation, rising interest rates, or economic instability, bonds provide a cushion with fixed returns, ensuring a steady income stream. Iyer emphasizes that the stability of bonds makes them an essential part of any well-balanced portfolio, particularly for those looking to diversify and reduce overall risk. In uncertain times, bonds stand strong as a reliable, all-weather investment option.
Fixed Income, Steady Returns: Lakshmi Iyer Talks the Benefits of Bonds
Lakshmi Iyer of Kotak Mahindra highlights the enduring appeal of bonds, emphasizing their role as a source of fixed income and steady returns. Bonds offer a level of predictability that makes them a reliable choice for conservative investors seeking stability. Unlike equities, which are subject to market fluctuations, bonds provide a fixed interest rate over a specified period, ensuring a consistent income stream. This stability makes bonds particularly attractive in volatile economic environments, where the risk of market downturns can impact other investments. Iyer also notes that bonds serve as an excellent diversification tool, balancing risk in a portfolio that may be heavily weighted in equities. Whether in a rising or falling interest rate scenario, bonds continue to offer safety, capital preservation, and the peace of mind of regular returns. For those seeking reliability and reduced risk, bonds remain an essential investment strategy.
India has been a land of savers. With the bulk of household money, finding its way into traditional modes of savings like bank deposits Indian bond markets still continue to be owned by domestic institutions like banks, insurance companies, and mutual funds compared to other parts of the world, where there is reasonable household participation as well. The typical perception of a retail investor is that if he or she has bank deposits, it is equivalent to fixed-income investing. That mindset is gradually changing and with a favourable interest-rate regime, we could look at some enhanced participation in the near future.
If we look five years into the future, what big changes in terms of rules, trends, or policies do you think will shape India’s bond market?
Indian sovereign bond market is extremely liquid in the secondary market. Even Indian corporate bonds have a reasonably vibrant secondary market, which is sufficient for retail/institutional investors to buy and sell. Indian sovereign bonds are also now available for retail investors to do direct transactions. Like we have the government bond market, which is an anonymous trading platform, maybe a similar kind of platform for corporate bonds can help augment liquidity with enhanced financial literacy, and we could see some enhanced participation of households in the Indian markets.
While the Government of India is the largest borrower, Indian Banks are the biggest investors in such a category. NBFC’s and mid-sized firms do tap the market from time to time and with the advent of private credit funds through the AIF route we have seen many more mid-sized companies coming to access the market via bonds. It has created a reasonably active primary market for mid-sized firms and NBFCs and the trend is likely to continue.
Conclusion
Lakshmi Iyer’s comparison of bonds to lemon water highlights the enduring value of fixed income investments, regardless of market conditions. Just as lemon water offers consistent refreshment, bonds provide stability and reliable returns year-round. Their role in a well-diversified portfolio remains crucial, especially in uncertain times, balancing risk and offering a hedge against volatility. As Iyer suggests, the predictable nature of bonds makes them an essential component of long-term financial strategies, providing both security and steady income to investors across different economic climates.
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