Sebi's liquidity window: A tailored fix for India’s corporate bond market woes
India’s corporate bond market has long been hamstrung by low liquidity, locking investors into their holdings until maturity and discouraging retail participation. While institutional investors dominate, retail investors—wary of the illiquid secondary market—have stayed on the sidelines.
The Securities and Exchange Board of India (Sebi) has unveiled a new liquidity window that offers retail investors guaranteed exits through pre-determined buybacks. If successful, the move could deepen the bond market, unlock broader participation, and serve as a blueprint for other emerging markets grappling with similar challenges.
Unlike equities, which enjoy high trading volumes and easy exits, corporate bonds are plagued by illiquidity—particularly for mid-sized and lower-rated companies. Investors often find themselves trapped, with no viable exit until maturity. This structural weakness has left the market skewed toward institutional investors, with retail participation lagging.
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Sebi’s liquidity window tackles this head-on by allowing investors to sell their bonds back to the issuer at regular intervals through a put option. This assured exit strategy is designed to build confidence among retail investors, addressing a core market weakness and removing one of the largest barriers to retail participation.
Sebi’s liquidity framework stands out from global practices by focusing on retail investors, a segment often overlooked in other markets.
US: Liquidity interventions like the Federal Reserve’s Primary and Secondary Market Corporate Credit Facilities (PMCCF, SMCCF) were crisis-driven, aimed at institutional investors during the COVID-19 pandemic.
European
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