The transformation is visible across participation, market depth and product innovation. While the market has become significantly larger and more accessible, experts believe there is still work to be done to improve liquidity, attract greater foreign participation and create a more vibrant market for lower-rated corporate debt.
According to CareEdge Ratings, India’s corporate bond market has expanded steadily over the years. Outstanding corporate bond issuances have increased from around Rs 11 trillion in FY12 to nearly Rs 59 trillion in FY26, registering a compound annual growth rate (CAGR) of 13.1%.
India’s bond market has grown significantly over the past decade, driven by regulatory reforms, digital platforms and rising retail participation. While market depth and innovation have improved, experts say stronger liquidity, higher foreign investment and broader lower-rated debt participation remain key growth priorities.
Despite this growth, banks continue to dominate corporate financing. In FY26, the non-financial commercial sector mobilised nearly Rs 45 trillion, with around 65% of the funding coming through non-food bank credit, highlighting that the bond market is yet to emerge as the primary source of long-term corporate finance.
CareEdge Ratings also noted that market depth remains uneven. Corporate bond issuances continue to be concentrated in highly rated securities, with AAA-rated papers accounting for 58% of issuances in FY26 (up to November 2025), while AA-rated bonds contributed another 19%.
Lower-rated issuances remain limited as insurance companies and pension funds are largely restricted to investing in AA-rated and above securities. Foreign participation is also modest, with FPIs accounting for only 5.4% of outstanding holdings, while secondary market liquidity remains constrained because a large share of privately placed bonds are held until maturity by long-term institutional investors.
Reforms have laid the foundation
A series of policy measures over the past few years has helped broaden the market and improve its functioning.
Sarbartho Mukherjee, Senior Economist at CareEdge Ratings, said regulatory reforms have largely focused on strengthening investor protection, improving transparency and widening participation in the corporate bond market.He cited the RBI’s decision to remove the 30% concentration limit and restrictions on short-term corporate bond investments for foreign portfolio investors in 2025 as an important step towards making India’s debt market more attractive to overseas investors.
Mukherjee also said reforms around InvITs and REITs have created alternative channels for infrastructure financing, enabling companies to raise long-term capital outside the traditional banking system while broadening investment opportunities.
Beyond these initiatives, regulators have introduced several measures to improve market efficiency. SEBI has allowed Alternative Investment Funds (AIFs) to participate in the credit default swap (CDS) market for hedging purposes, while exchanges have been permitted to launch derivatives linked to AA+ and above-rated corporate bond indices to improve liquidity and provide investors with hedging tools. Other structural reforms, including the mandatory market borrowing framework for large corporates and the removal of the Held-To-Maturity (HTM) cap on banks’ investments in corporate and state bonds, have also contributed to the market’s development.
Retail participation is gathering pace
One of the most visible changes over the past decade has been the growing participation of retail investors.
According to Aditi Mittal, Co-Founder of IndiaBonds, the market has expanded “across all three dimensions”—participation, market depth and product innovation.
Trading data illustrates this shift. The number of bond trades more than doubled from 11.9 lakh in FY25 to 28.4 lakh in FY26, while the average trade size declined by nearly 46% to around Rs 78 lakh.
“Smaller tickets are a clear sign that first-time investors are now active in a market once measured in crores per trade,” Mittal said.
She added that this change has been supported by a wider range of investment options. Beyond traditional corporate bonds, investors today can access curated bond portfolios, government securities, high-yield fixed-income products and newer offerings such as Bond SIPs, making fixed-income investing more practical for everyday investors than it was a decade ago.
A structural shift in market depth
The transformation has not been limited to retail participation.
Nikhil Aggarwal, Founder & Group CEO of Grip Invest, believes the changes are structural rather than cyclical, driven by reforms that have expanded both domestic and foreign investor participation.
He noted that the introduction of the Fully Accessible Route (FAR) in 2020 removed investment caps on eligible government securities, paving the way for stronger foreign inflows and India’s inclusion in global bond indices. FPI investments in FAR bonds subsequently climbed to a five-year high of Rs 1.32 lakh crore in FY25.
Aggarwal also attributed the rise in retail participation to SEBI’s reforms during 2022-23, including lower minimum investment sizes and the introduction of the Online Bond Platform Provider (OBPP) framework, which created a regulated digital ecosystem for bond investing.
The market itself has also become deeper. Average daily corporate bond turnover increased from Rs 5,722 crore in FY24 to Rs 7,645 crore in FY25, while listed bonds now account for a much larger share of secondary market trading. Public bond issuances have risen sharply over the past three years, reflecting growing confidence among issuers and investors alike.
Product innovation has been another defining feature of the market’s evolution. Alongside conventional corporate bonds, investors now have access to Sovereign Green Bonds and sustainability-linked bonds following SEBI’s framework introduced in 2025, opening up new financing avenues for sectors such as renewable energy, infrastructure and financial services.
The next phase of growth
While India’s bond market has become significantly larger and more diversified over the past decade, experts agree that important challenges remain.
According to CareEdge Ratings, greater participation from foreign investors, improved secondary market liquidity and a broader market for lower-rated debt will be critical for the next phase of development.
The progress made over the past decade has laid a strong foundation. The focus now is on creating a deeper and more liquid bond market that can complement the banking system, provide companies with a wider range of financing options and offer investors a more diversified fixed-income investment universe.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)