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Bonds occupy the predominant share of the capital markets in developed economies like USA and European countries. In these economies the major proportion of the financial flows are through the medium of bond markets. However, in India, Bond markets were largely relegated to the back seat in the early 70's when the equity cult was developing in India. It took the centre stage only during the 80's.
The initiative was taken during the early 80's by the public sector utilities like NHPC, PFC. MTNL etc by issuing the bonds to meet their financial requirements. As a cheaper source of funding compared to equity, these bonds turned out to be an excellent medium of financing during this period. However, from 1987 onwards there was a lull in the bond markets for about 5 to 6 years.
Bond markets in India received a shot in its arm in 1992 when IDBI brought a new concept of Deep discount (DD) bonds. The DD bond issue of IDBI was a great revolutionary step and got a thumping success. It had offered a return of Rs. 1 lac on an investment of Rs. 3600/- after a period of 25 years. The resounding success of this bond worked as a spring board for the Bond markets in India.
The other institutions which were closely watching the success of this Bond Issue of IDBI were IFCI, ICICI, and SCICI. Boosted by the success of this IDBI, IFCI and ICICI also came out with similar Bond issues, which also got similar responses from the investor community.
Equity with a few notable exceptions, has been shedding their value continuously for the last four years. Since April 1998, equity markets have lost about one fifth of their capitalisation, inflicting massive losses to the investors. In these turbulent stock market times, it makes sense to park the funds in the safer heavens along with prospects of good returns.
With commercial banks offering measly interest on saving accounts, the profitable investment option available to investor is the fixed income securities in the form of company fixed deposits, the debentures of the corporate entities and bonds of financial Institutions.
The phenomenon of finding succour in bonds during the turbulent stock market is not unique to India. All over the globe the crash of stock markets are forcing majority of the investors to find solace and protection in bond markets, especially the bond markets of United States. Therefore, there has been a sudden upsurge in the demand for US Bonds. As a result, a large proportion of Asian Funds are moving to US Bond Markets and pushing up the bond prices.
