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• It is tempting to be carried away by the investor response to the spate of recent public bond offerings such as the one by the National Highway Authority of India (NHAI) and Power Finance Corporation (PFC) and the lapping up of local bonds by foreign funds. Some see it as the signs of a retail market for bonds taking off as scores of investors scrambled to put money in a relatively risk-free product being sold by quasi-sovereign entities at a time when investors are shunning equities. The size of the NHAI bond issue was around Rs 10,000 crore, and it received subscriptions worth Rs 25,000 crore, while PFC intended to raiseRs 4033 crore and received subscriptions worth Rs 10,000 crore.

• The numbers may appear impressive but old timers in India's corporate debt market who have lived through well over two decades of talk of reforms in this segment of the financial sector are hardly impressed. That is because they reckon that the success of recent bond offerings is built on factors which are not critical to building a mature, liquid and a transparent debt market. What they have in mind is the fact that both NHAI and PFC were an attractive combination of high post tax returns- close to 12.01% for those in the 30% tax bracket, top credit rating and an opportunity to lock in for long tenors, especially for high net worth individuals and cash-rich corporates. The issue was over-subscribed four times in the HNI category.

• "The investor perception towards such bonds has changed to one that of alife-long kind of annuity. A lot of people have put their provident fund money in these bonds," said one of the managers of the issue who declined to be named. Investors are now flocking back to fixed-income products after a poor experience with equities over the last year or two. Over the past 12 months, the BSE Sensex has fallen by almost 25%. The risk aversion is reflected in the surge in term deposits with banks and the success of bonds which offer relatively good returns with investors favouring those issued by state-run firms. "After the dip in brokerage, the broking community is now pushing other products, where they can get higher brokerage," says Paritosh Kashyap, head, debt capital markets, Kotak Mahindra Bank. Parthasarathy Mukherjee, president, international banking, Axis Bank says that it is important not to be carried away by the recent success of bond issues.

• "We must not be misguided by the recent successes of the public bond issues. It would be interesting to see, if these bonds would have got a similar response, without the tax element. They may not see the same amount of interest," he says. Indeed, fiscal incentives have largely contributed to the success of these bond offerings, though the real test is when investors plump for the quality of issuers without sops on offer. But for that corporate issuers will have to instill confidence among investors who have been hurt in the past after buying into their stocks. The corporate debt market provides a window of opportunity for firms to diversify their sources of borrowing and boost their brand equity. "The facility to issue tax-free bonds should be given selectively to government-held institutions that need longterm funds aligned with the government's objective of providing funding to core sectors like infrastructure, whose development is critical to economic growth," says Nirav Dalal, MD, debt capital markets, YES Bank.

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