Fixed Income in 2024: A Year of Resilience and the Road to 2025
In a world of volatile equity markets and diminishing returns from traditional assets, fixed-income investments stand out for their stability and predictability.
Infrastructure bonds emerged as a focal point in 2024, supporting India’s ambitious growth agenda.
By Vishal Goenka
As we wrap up 2024, the fixed-income landscape has stood out as a beacon of stability amidst global financial turbulence & geopolitical instability. While markets worldwide grappled with volatility and uncertainty, the Indian debt market offered investors a much-needed sense of calm and stability of returns. As of end Sep-2024, the Indian bond market stood at US$2.69 trillion (Source: CCIL, SEBI).
2024: The Year Fixed Income Redefined Stability
A Steady Interest Rate Environment
If one word could summarise the fixed-income market in 2024, it would be “stability.” For investors, the motto “boring is beautiful” couldn’t be more relevant whilst the equity market struggled to keep volatility in check. Following rate hikes in prior years, the Reserve Bank of India (RBI) maintained a steady rate policy in 2024, creating a calm interest rate environment. Investors earned steady returns plus capital appreciation this year. The 10-year Government Security (G-Sec) yield reflected this stability, starting the year at 7.18% and currently at around 6.75%.
Democratizing Debt Market Access via Progressive Regulatory Reforms
SEBI’s landmark decision to lower the face value of bonds from ₹10 lakh to ₹10,000 was a game-changer in 2024. This move broke down barriers, making bond investments accessible to retail investors. With just ₹10,000, individuals could now diversify their portfolios and enjoy the benefits of stable income streams—an opportunity once accessible only to institutions.
Revolutionizing Investments with OBPPs
Platforms like IndiaBonds led the digital transformation of bond investing. With SEBI-registered OBPPs simplifying the investment process, retail investors could now buy bonds in minutes. These platforms provided the tools and transparency needed to make informed decisions, significantly driving retail participation. Bonds went from being seen as complex to becoming a straightforward and essential investment instrument in a retail portfolio.
Global Validation of Indian Bonds
India’s inclusion in the JPMorgan Global Bond Index (GBI-EM) and Bloomberg’s index in 2024 marked a significant milestone, propelling the country into the global investment spotlight. The subsequent inclusion in the FTSE Russell index, scheduled for September 2025, is poised to further solidify India’s position as an attractive destination for foreign portfolio investment. This global recognition has not only underscored the maturity of India’s bond market but also boosted domestic confidence.
The Rise of Infrastructure Bonds
Infrastructure bonds emerged as a focal point in 2024, supporting India’s ambitious growth agenda. With banks facing slower deposit growth, these bonds became a critical funding source, channelling resources into key development areas. For investors, infrastructure bonds offered not only predictable returns, typically in the range of 7.25%–8.25% for tenures of 5–10 years, but also a unique opportunity to contribute to nation-building efforts. This alignment of public policy with investment opportunities underscores the vital role of infrastructure bonds in shaping India’s economic future.
What Awaits in 2025: Opportunities and Challenges
Navigating Global Uncertainty
Geopolitical tensions and inflationary pressures will likely continue influencing global markets. However, India’s stable interest rate environment offers a cushion against external shocks. The RBI is expected to take a measured approach to rate cuts, sustaining the attractiveness of fixed-income investments for risk-averse investors, with no more than 25-50bps cuts anticipated.
A Surge in Global Bond Flows
Starting January 2025, India will receive inflows from the Bloomberg Global Bond Index, followed by the FTSE Russell in September. These developments are poised to:
- Add significant liquidity to the market.
- Reinforce India’s position as a key player in the global debt market.
- Enhance accessibility for foreign investors, boosting overall confidence in Indian bonds.
Private Credit and Innovative Funding
Non-Banking Financial Companies (NBFCs), facing tighter access to traditional credit, are increasingly exploring private credit channels. This segment will likely see significant activity in 2025, offering investors an alternative avenue for diversification. Also likely to see some stress in MFI sector lending due to supply-demand dynamics
The Push for Market Harmonization
Distribution of Fixed Income remains unregulated unlike equities and mutual funds. This should likely be addressed for more transparency and investor protection. Fragmentation in fixed-income trading venues—spread across RFQ and Capital Markets on exchanges —remains a challenge, leading to inefficiencies in price discovery and liquidity. Further harmonization of trading platforms through interoperability, standardized reporting, and innovative settlement technologies can streamline operations and strengthen India’s bond market.
Retail Investors Lead the Way
Retail participation in bonds is poised for significant growth in 2025, fuelled by advancements in Online Bond Platform Providers (OBPPs) and a stronger focus on investor education. With the wealth creation effect due to equity markets, the need for portfolio diversification ad investing in low volatility assets will make fixed income stand out as obvious choice.
Why Fixed Income Is a Must-Have
In a world of volatile equity markets and diminishing returns from traditional assets like real estate and gold, fixed-income investments stand out for their stability and predictability. For retail investors, 2025 presents a unique opportunity in bonds. With stable interest rates, growing global recognition, and a widening array of investment options, fixed income offers a compelling case for inclusion in every portfolio. The narrative around bonds has shifted—from being complex to becoming indispensable.
Whether you’re an individual investor or an institution, bonds offer a unique opportunity to participate in India’s growth story, as in the years to come, bonds won’t just stabilize portfolios—they’ll drive economic progress, enabling retail investors to contribute meaningfully to the nation’s journey toward a $7–8 trillion economy
(The author is Co-Founder, IndiaBonds.com)
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