Investment in corporate bonds provision to benefit both Indian companies and QFIs

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Corporate bonds provision to benefit India and QFIs
Budget 2012 - 13 has allowed has proposed to allow qualified foreign investors to invest directly in corporate bonds of Indian companies.

Qualified foreign investors are foreign individuals, groups or association of persons registered outside India who do not violate any eligibility norms for investment in Indian markets.

This measure will benefit both the QFIs and Indian companies. Indian companies are currently paying one of the highest bond yields in the world.

Average yield on five year bonds of Indian companies during much of 2011 hovered at around 9.57 per cent. The average yield on Chinese corporate bonds during this period was 4.88 per cent. QFIs can earn these high yields by investing in corporate bonds of Indian companies.

Indian companies will benefit from this provision because it will enhance the liquidity of the debt market. This is likely to bring down their cost of borrowing. India's bond market currently lacks the kind of depth which is necessary for an efficient market and this move will go a long way in increasing it.

Dion Global Solutions Ltd

Read more about: union budget 2012
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