Guest Lacture by Mr. Saibal Ghosh on Debt Markets in India

The discussion on the Indian Debt Markets by Mr. Saibla Ghosh, Senior Fund Manager, Sahara India Finance, opened with a comparison of the debt market and the equity markets in India. The volumes in the debt markets in India are much higher than that in the equity markets, but it has been limited to the wholesale debt market segment due the specialized knowledge required for trade in it.

Following are the highlights of the talk:

• The debt market can be divided into two - the SLR Bond Market and the Non SLR Band Market

SLR Bond Segment
The history of SLR Bond segment dates back to 1930's when the Adhoc Treasury Bill was passed under which the government fiscal deficit was financed by Adhoc Treasury bills at the administered rate of 2-3%. And this, without being backed by output could lead to inflation in the economy. But in 197, it was decided to borrow at the market rate. The groundwork done to implement this was done in the form of

• Introduction of Primary Dealers, which were given access to low cost funds and forced to enter into debt market transactions.
  
• The bank rate was changed to being market related. It was particularly important as the outlook of RBI towards the interest rate is indicated through the bank rate.

Non - SLR Segment
As regards the Non -SLR Segment, the major player are the mutual funds. Though the liquidity in this market is high, it is directly relate to the rating that the fund can get for its units.

• Debt Market Research

The next part of the discussion focussed on the research that is carried out in the debt market.
The research can be market research and company specific.
While undertaking a market research, it is important to form a view on the interest rate. The interest rate depends on the demand and supply of money in the economy.

The demand is dependent on

• The credit offtake which is related to the industry and agricultural growth, and
  
• Government borrowings, which is related to the fiscal deficit.

The supply depends on the

• The bank deposits, which is a function of the monetary management of RBI
  
• Redemption of and coupon disbursement from the government securities which is predefined.

While undertaking a company specific research, two aspects are important:

• Liquidity in the short run
  
• Solvency in the long run

It also requires analysis of the reason for borrowing, credit rationale of the credit rating agency and internal company matters.

The talk ended with an interactive question - answer session.