Indian bond market gears up for infrastructure boom
Competitive pricing is attracting a substantial number of investors looking for stable and lucrative opportunities
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State governments are also gearing up for significant infrastructure spending, signaling a robust pipeline of infrastructure bond issuances. These bonds will fund a wide range of projects, driving economic growth at the regional level
As the demand for infrastructure bonds surges, large investors are increasingly locking in their investments in long-tenor instruments. Banks and other infrastructure issuers are seizing this opportunity, with a significant uptick in bond market activity since April.
Talking to Bizz Buzz, bond market veteranVenkatakrishnan Srinivasan, founder and managing partner of RockfortFincap LLP, says, “Prominent AAA-rated issuers, including major banks like State Bank of India (SBI) and ICICI Bank, are particularly keen to tap the bond market. Canara Bank is also planning to issue infra bonds upto Rs. 10,000 crore this week. These institutions are securing competitive pricing, with yields ranging from 7.35 per cent to 7.55 per cent annualized, offering minimal spreads over corresponding government securities. This competitive pricing is attracting a substantial number of investors looking for stable and lucrative investment opportunities.”
Public Sector Undertakings (PSUs) in the infrastructure space, such as India Infrastructure Finance Company Limited (IIFCL) and the National Bank for Financing Infrastructure and Development (NABFID), are aggressively issuing bonds. These entities are leveraging their strong credit ratings and the growing demand for infrastructure investments to secure necessary funding for large-scale projects, he said.
The three key infrastructure development funds—India Infradebt, NIIF Infradebt, and Kotak Infradebt—have also entered the bond market since April. These funds are critical in channeling investments into infrastructure projects, ensuring steady capital flows for long-term development.
Infrastructure Investment Trusts (InvITs) like India Infra Trust and Cube Highways are also tapping the bond market to finance their infrastructure projects.
Market sources indicate that several large banks, including HDFC Bank, Bank of Baroda, Canara Bank, Bank of India, Axis Bank, and Kotak Mahindra Bank, are preparing to issue long-tenor infrastructure bonds.
These banks are gearing up to meet the increasing demand for infrastructure funding, leveraging their robust balance sheets and strong market presence.
Several municipalities, including PimpriChinchwad Municipal Corporation (PCMC), Nasik, Vizag, Kanpur, Surat, Varanasi and Prayagraj, are planning to enter the infrastructure bond market soon.
PCMC, in particular, is considering raising up to Rs. 200 crore through green municipal infrastructure bonds, pending approval from the state government and other relevant authorities, as per market sources.
State governments are also gearing up for significant infrastructure spending, signaling a robust pipeline of infrastructure bond issuances. These bonds will fund a wide range of projects, from urban development, transportation, logistics to energy, driving economic growth at the regional level.
Despite the anticipated influx of infrastructure bonds, investor appetite remains strong. This is driven by expectations that the monetary policy stance will remain unchanged, with no concrete updates on immediate shift from the current withdrawal of accommodation. Investors are keen to absorb the new bonds, seeing them as stable, long-term investment opportunities in a low-yield environment.
Anil Kumar Bhansali, head of treasury and executive director, Finrex Treasury Advisors, says, “India’s induction into JP Morgan emerging market funds will result in it being able to find its fiscal and current account deficits, thereby leaving more space for corporate borrowings. It will also help India to enhance the liquidity and ownership base of government securities.”
The inclusion of certain sovereign bonds will support a diversification of investor base for the government securities. It could help lower funding costs slightly and further support domestic capital markets, he said.
The growing interest in infrastructure bonds highlights the sector's critical role in India's economic development. As banks, PSUs, infrastructure funds, InvITs, municipalities and state governments continue to tap the bond market, they are providing a stable and attractive investment avenue for long-term investors.
This surge in infrastructure funding is poised to drive significant economic growth, addressing critical infrastructure needs and supporting sustainable development across the country.
