Mutual funds are open-type investment companies with a portfolio of securities. As a rule, shares in these funds are bought by companies – investors and private individuals.
RBI developed the market operation scheme in April 1992. Its main goal was to provide additional short-term funds to individual investors. Since this scheme did not have a proper impact on the development of the market, in November 1995, RBI introduced certain concessions, among which – expanding the circle of players in the market, canceling the ceiling of 500 million rubles. In 1996 – 1997 The policy aimed at deregulating this market segment continued. So, the term of the “locked period,” i.e., the time when the investor cannot sell securities was reduced from 46 to 15 days.
Certificates of deposit have been circulating in the Indian money market since 1989. They are issued by a commercial bank either directly or through dealers.
The financial market in India is one of the oldest in the world and is considered the best and fastest-growing among all emerging markets. The history of Indian financial markets began 200 years ago, at the end of the 18th century when India was under the rule of the East India Company.
Today, the financial market of India is more developed than many other sectors of the economy, since it was organized long before them; the stock exchanges of Mumbai, Ahmedabad, and Calcutta were established in the early 19th century. By the beginning of 1960, the total number of stock exchanges market in India had increased to eight; exchanges in Madras, Kanpur, Delhi, Bangalore, and Pune were added to exchanges in Mumbai, Ahmedabad, and Calcutta. Today, in addition to the centralized National Stock Exchange -NSE and the OTC Market of India -OTCEI, there are 21 regional stock exchanges in the country. Nevertheless, the securities markets in India remained stagnant due to stringent market economy controls that allowed a small number of monopolies to dominate the respective sectors.
The softening privacy policy of the Reserve Bank of India may narrow the spread of Indian bonds and US Treasury bonds. However, global fund managers point out that the real rates market in India will continue to remain high in relative terms and should not cause much damage to the country’s potential for the carry trade. Despite falling 231 bp. over the past three years, the yield on the 10-year bond market in India remains the highest among the main regional bond market after Indonesia.
Foreign investors are also attracted by the political stability market in India and the ongoing efforts of the country’s central bank to control rising consumer prices. In May, inflation fell to a record low of 2.18%. Borrowing in dollars for the purchase of assets denominated in rupees generated 7.5% revenue this year, the highest return on carry trade operations in Asia.
The bond market in India has become more saturated in terms of trading volume compared with its initial state about ten years ago. In terms of volume, the market in India ranks third in Asia after Japan and Korea. This bond market is represented by government and corporate bonds with the dominant position of the former. The corporate bond market is still at an early stage of development, both in terms of the microstructure of the market and in terms of its impact on the entire market as a whole.
Global debt markets tend to exceed stock markets. Nevertheless, the debt market in India is tiny compared to the stock market. The current situation is because the abolition of state regulation and the liberalization of the bond market in India were carried out relatively recently, so he is in a relatively early stage of development. Government bonds form a large part of the debt market, and they account for about 90-95% of the securities in circulation; the same proportion relates to bond market capitalization and trading volume. Over the past few years, there has been a significant increase in the government debt market. Futures and options trading has not yet begun on the bond market, which can play a major role in identifying their prices, liquidity, and also in managing risks during trading on the open market.
Recently, some reforms and substantial restructuring have been carried out in the financial and capital markets, which has reduced the number of problems in the retail bond market, in particular, in terms of servicing more investors. Currently, trading operations with corporate bonds are carried out in three main ways: directly between bidders, when a bilateral transaction is settled by means of checks in the currency of the central bank and the transfer of securities through depositories; through a broker who brings the buyer and seller together and helps to complete the transaction. The broker is obliged to report transactions to the stock exchange, where he is registered; through the private equity segment on the stock exchange, where the corporate bond market is traded in an anonymous order book system and settled through a clearinghouse/company with novation.
Now you know the history of the bond market in India and the stage of its development. To start trading bonds, you need to become a member of the Dowmarkets team. Register on the official website of the company, and you will get access to many useful materials for trading.