Indian Debt Markets: In good shape?
Why can we not have a good Real estate mutual fund in India?
Simply because the underlying market is not well organized. So I can buy a flat in Ahmedabad at Rs. 4500 a sq ft and in the adjoining road at Rs. 5500 a sft. from a different builder. I can do this in all states, cities…and the fund administration people will not know whether I got a kick back for doing the deal.
Cut to the equity market. There is a solid underlying market with a fantastic price discovery mechanism. What I mean is that we have just 2 markets – Nse and Bse. Nse does most of the trade. Now if there is an imperfection in the price the speculators, investors, traders, arbitrageurs, …will all pounce on the difference and try to make money. This ensures that the market price discovery is superb and almost perfect. This happens because Sebi has ensured that there is a robust equity market where the price is discovered continually and I can get a confirmation about what price my particular transaction was done.
Now come to the Debt market!
Our great banking regulator has been promising a robust wholesale and retail debt market since the 1980s. We still do not have it. We do not have a great signalling system. We do not even have a market – most trades are privately done and then recorded in the books. It is time that we pushed the regulator really hard to create a debt market. However, the regulator will NOT. Somewhere there is a fear of loss of control and therefore the reluctance. Or so it seems.
If we had a good robust debt market, the price discovery would have made a mockery of our debt rating companies. These companies are terribly over-rated, and over-priced. We would have seen a AAA with a 8% yield and an AAA with a 9.9% yield. We could have laughed. Sadly as our money is involved we have to cry.
What could have been done 20 years ago:
The government could have created a debt market. The wholesale market would have been created by reducing the funds with the banks and thus nudging the corporate sector to go to the market and raise funds. In fact in 2015/6 we did see a large number of psu banks (and others) come out with bond issues and those are still listed and are quoting at a premium.
The government could have listed all the govt debt instruments (kvp, ivp, nsc, what have you) to be listed on the exchanges.
If all this was listed we would have ourselves put our money, friends money, etc. in direct debt…without having to pay for the fancy fund managers.
Sadly we do not have a debt market. Will not have a debt market for the next few decades…by which time I will surely be dead…
RIP. Debt market. Did you hear it as Dead Market? Sorry.
I may not agree with all of this….but it is a comprehensive article…
Bala
So, for short term goals, say 12 to 18 months, are debt funds risky as well.