The Emerging Opportunity In India's Corporate Bond Market

New Delhi, Aug. 11 -- Revisiting the Special Address by Nikhil Agarwal, Founder and CEO, Grip Invest, at the VCCircle Family Office Summit 2026.

India's corporate bond market is undergoing a significant transition. Changes in credit performance, liquidity, issuer diversity, regulation and investor participation are drawing attention to a segment of fixed income that has historically remained outside many portfolios.

For a fixed-income professional, acknowledging that corporate bonds have not adequately met the objectives of Indian investors may appear contradictory. Yet, this was the question that led to the establishment of Grip Invest nearly six years ago: how could fixed income, the world's largest asset class and one significantly larger than equity, fail to add value for Indian investors?

Grip Invest operates as a SEBI-registered platform for fixed-income investments and also runs a Category II debt alternative investment fund. Over the past three years, the company has facilitated more than Rs.5,000 crore in fixed-income investments from approximately 75,000 clients.

Why Fixed Income Has Lagged Behind Equity

Most investors assess an investment opportunity across three parameters: credit quality, return profile and liquidity. Historically, every segment of fixed income has fallen short on at least one of these dimensions. It is therefore unsurprising that adoption in fixed income has remained significantly behind equity, particularly over the past few years. The last two years, however, have produced a divergent trend across different parts of the debt market.

Retail and high-net-worth individual participation in debt mutual funds has declined by approximately 10% in absolute terms over the past three years. This followed changes in the taxation of debt mutual funds, which brought them on par with other debt instruments.

At the other end of the market, private credit, venture debt and performing-credit strategies, largely managed through alternative investment funds, have recorded steady growth of approximately 15% over the past two years. Neither trend is particularly unexpected. The more significant change is taking place between these two segments.

The Segment Most Investors Continue to Miss

The market for A and BBB-rated corporate bonds has grown at a CAGR of approximately 50% over the past two years.

With an estimated market size of nearly Rs.73,000 crore, this is no longer a small part of the fixed-income market. Yet, in Grip Invest's experience, many investors continue to overlook it. While discussions around fixed income often focus on highly rated securities, liquid funds or private credit, A and BBB-rated investment-grade bonds remain absent from many portfolios.

A Structural Gap Between Capital and Bond Supply

The opportunity within this segment is partly the result of a structural mismatch in India's debt market.

Approximately 90% of the country's capital is held by mutual funds, pension funds, banks and corporate treasuries. Regulatory requirements, redemption concerns, legacy policies and institutional structures often prevent this capital from crossing certain credit-rating thresholds.

As a result, a large share of institutional money does not flow into A and BBB-rated corporate bonds, creating a mismatch between where capital is concentrated and where bond supply is available. The difference becomes apparent when returns are compared across ratings. According to the data, the largest spread in the market exists between AA and A-rated bonds. Investors can earn approximately 150 basis points of additional return by moving one rating level lower from AA to A.

Further into the BBB-rated segment, plain-vanilla non-convertible debentures can offer returns close to those available through performing-credit funds, without necessarily involving subordinated debt or complicated structures.

Credit Defaults Are at a 17-Year Low

The central question is whether this opportunity is sustainable and how credit risk is reflected in returns.

Data presented during the address, covering default rates across rating categories over a 20-year period, indicated that credit defaults are currently at a 17-year low, their lowest level since the global financial crisis.

When the analysis is narrowed to A and BBB-rated bonds with a two-year maturity, default rates between FY2015 and FY2025 remained below 1%, according to the data presented. For a two-year investment-grade instrument, the combination of these historical default rates and the additional return available creates a potentially compelling risk-reward spread.

Liquidity Is Expanding Rapidly

Liquidity has historically been one of the principal concerns associated with corporate bonds. Investors may be willing to purchase a security, but often remain uncertain about their ability to exit before maturity. A and BBB-rated bonds available through regulated platforms are listed securities. They are held in dematerialised accounts and can be traded through stock exchanges.

The number of monthly trades in this segment has been growing at approximately 14% per month. At this rate, liquidity in the market is doubling roughly every five months. This increase in transaction activity means investors may be able to purchase a bond offering returns of approximately 12% to 13%, hold it for a shorter period and exit before maturity.

The expansion in liquidity has been supported by SEBI and the stock exchanges. The infrastructure developed by exchanges, including the National Stock Exchange, has enabled a greater number of transactions in this segment.

Issuer Diversity Has Doubled

Credit performance and liquidity are not sufficient on their own. Investors also require a sufficiently broad pool of issuers because a bond portfolio should not be concentrated in a single security.

The number of companies issuing investment-grade bonds has doubled over the past three years. Approximately 200 companies are expected to issue bonds during FY2027, giving investors a wider range of securities from which to choose. Many are recognisable companies that investors may already know or hold through the equity markets. Their bonds now provide an additional fixed-income investment option.

The Return Premium Has Remained

While credit conditions, liquidity and issuer diversity have improved, the returns available in the segment have remained broadly consistent. The spread earned by corporate bonds over government securities, debt mutual funds and fixed deposits has remained nearly unchanged over a ten-year period.

According to the data presented, these instruments may offer returns close to 100% higher than those available on certain government securities. When considered alongside historical default rates of below 1% for two-year A and BBB-rated bonds, the return differential creates a potentially compelling risk-reward proposition.

Two Ways to Access the Market

Investors now have two principal routes through which to participate.

The first is an active strategy through a SEBI-registered online bond platform. Investors can select bonds and build a portfolio based on their own preferences, much as digital platforms enabled individuals to construct their own equity portfolios. This route allows investors to choose the securities they want to hold and sell the bonds before maturity where liquidity is available.

The second route is through a managed structure such as a portfolio management service or an alternative investment fund investing in listed bonds. There are relatively few such funds. Most private-credit funds currently invest in private and unlisted credit, while only a limited number focus exclusively on listed securities. Listed-credit funds can actively churn the portfolio, generate monthly returns and manage principal redemption through a managed structure.

Managing Credit Risk Through Listed Bonds

Within a fund structure, a manager actively monitors the credit performance of the underlying securities. A fund may hold between 50 and 100 bonds, providing diversification across issuances. The listed nature of the securities also means that a yellow or red flag can potentially be acted upon before the issuer's financial position deteriorates further.

A fund manager can churn the portfolio every quarter or every six months, reducing exposure to a particular issuance when concerns emerge. This flexibility is generally not available in unlisted securities, where many private-credit investments are held until maturity.

Listed bonds also provide access to more regular financial information. Companies issuing them are required to follow applicable stock-exchange disclosure norms, even when their equity shares are not listed. Investors and fund managers can review quarterly financial statements, updated credit reports, legal developments, GST filings and other available information to monitor the direction of an issuer's credit profile.

A Fundamentally Different Market

India's fixed-income market has changed across every major dimension over the past three years.

Credit-default rates have declined, liquidity has expanded, the number of issuers has increased and access to listed corporate bonds has improved. A category of bonds that investors historically avoided because it was considered credit-risky and illiquid now requires closer attention. This transformation has been driven by regulation, investor adoption and improvements in corporate-governance standards. The corporate bond market available to investors today is therefore fundamentally different from the one that existed only a few years ago.

About Grip Invest

Grip Invest is a fixed-income investment platform offering access to corporate bonds, securitised debt instruments and fixed deposits. It seeks to make regulated and curated fixed-income opportunities available to a wider base of Indian investors.

Investments on the platform start from Rs.1,000. Corporate bonds listed on the platform offer indicated returns ranging from approximately 9% to 12.5% across tenures of three to 36 months, while securitised debt instruments offer indicated returns of approximately 10% to 12.5% over tenures of six to 48 months. The platform also distributes fixed deposits offering indicated rates of approximately 7% to 9% over periods ranging from 12 to 36 months.

The regulated platform entity, Grip Broking Private Limited, is a member of the National Stock Exchange and a registered depository participant. It is also registered with the Association of Mutual Funds in India as a mutual fund distributor. The wider Grip group operates SEBI-regulated alternative investment fund and portfolio management businesses. The company is registered in New Delhi and operates from its corporate office in Gurugram.

NOTE: This article has been developed by the VCCEdge Research Team for Grip Invest.

Published by HT Digital Content Services with permission from VC Circle.