Mumbai: Indian mutual funds must trade more actively in the secondary markets for corporate debt to deepen market liquidity and ensure better price discovery, a fund manager said on Wednesday.
“Most participants take a keen interest in the primary markets but some of the bigger players are not showing the same activity in the secondary markets and that is the dichotomy we have to address,” said Amitabh Mohanty, head of fixed-income at Reliance Capital Asset Management.
Indian borrowers usually sell debt privately while raising funds and top-rated companies can place up to Rs40 billion easily, according to analysts. But trading in the secondary markets is very thin and confined to a handful of securities in the absence of a benchmark yield curve.
“As mutual funds, we must not shy away from taking credit risks and the regulators and the market participants must sit together to address these issues,” Mohanty told bankers and fund managers at a corporate bond seminar.
Most funds invest in bonds maturing in two years or less and rated “AAA,” said Mohanty who manages assets worth about Rs600 billion.
“If we do not address these issues then though entry won’t be a problem, exiting these positions would be very difficult and we will not be able to hedge our credit risks,” he said.
Indian open-ended debt income funds held a little over a third of their Rs93 billion of debt investments in corporate bonds, according to mutual fund tracking firm ICRA Online.
Most of the investments in longer-maturity debt is cornered by the pension companies and insurance funds, he added. While banks lend actively to mid-sized companies, they balk at subscribing to their bond issuances, he said.
The total market capitalisation for corporate debt stood at Rs680.47 billion at end 2007, according to the 2007/08 economic survey.