According to Saurav Ghosh, Co-founder of Jiraaf, while the impact will not be immediate, high-grade issuers stand to benefit the most as AA and AA+ corporates gradually move closer to AAA ratings.
This shift could lower borrowing costs, strengthen balance sheets, and broaden access to safer, high-quality bonds for both institutional and retail investors. Edited Excerpts –
Q) Could this rating upgrade lead to a re-rating of Indian corporate bonds, and if so, which segments or sectors are likely to benefit the most?
A) Yes, but the impact will be gradual rather than immediate. A sovereign upgrade lowers the country’s risk premium, which eventually trickles down to corporate borrowing costs. The re-pricing of Indian corporate bonds will take time, but over the medium term, institutional borrowers should enjoy cheaper funding and stronger balance sheets.
Sectors likely to benefit most:
Donald Trump’s recent financial disclosure reveals extensive bond investments, totaling over $103.7 million since his return to office. These investments include corporate debt from companies like Qualcomm, Home Depot, and Meta, some of which are affected by his administration’s policies. Unlike past presidents, Trump has not divested assets or established a blind trust, raising concerns about potential conflicts of interest.
Financial institutions & NBFCs: Already reflected in S&P’s upgrade of 10 lenders, including SBI, HDFC Bank, ICICI, Axis, Bajaj Finance, and Tata Capital. Offshore spreads are expected to narrow by 15–30 bps, lowering funding costs.
Infrastructure & capital-intensive sectors: Power, roads, renewable energy, and transport firms gain as even small yield reductions significantly improve project IRRs and attract FPIs.Export-oriented corporates, including IT, pharma, and manufacturing companies, that tap overseas markets should see cheaper issuance costs.High-grade issuers: AA/AA+ corporates may move closer to AAA, boosting liquidity and the supply of top-rated bonds.For retail investors, the upgrade could broaden access to safer, high-quality corporate bonds offering better yields than traditional deposits.While the S&P sovereign upgrade to BBB won’t re-rate corporate bonds overnight, it lays the foundation for lower funding costs and more substantial debt market depth in the years ahead.Q) After the status quo policy from the RBI, do you see further rate cuts in the rest of FY26 and why?
A) Given the RBI’s status quo in its August policy, I believe further rate cuts in the remainder of FY26 are possible, but the bar is high.
July CPI at 1.55%, well below the RBI’s 2 to 6 percent tolerance band, creates theoretical room for easing. However, this drop was driven mainly by inherently volatile food prices, and core inflation remains near 4 percent. RBI’s inflation forecast for FY26 is pegged at 3.1% suggesting the July softness may not sustain.
Bond market behaviour reinforces this caution. The 10-year G-sec yield has hardened to over 6.44 percent, widening the spread with the repo rate to nearly 100 basis points. This is historically a sign that markets expect policy rates to hold.
Weaker demand for long bonds, fiscal concerns, and global uncertainty also point to the RBI prioritising stability over aggressive easing.
If inflation stays anchored near 2 percent in the coming months and growth momentum softens, an October or maybe a December cut could be possible. For now, the most likely scenario is a steady rate path through much of FY26.
Q) How should investors position themselves in the fixed income portfolio amid rate cuts and geopolitical concerns?
A) Rate cuts tend to benefit medium to long-duration bonds through price appreciation, while geopolitical risks make quality and liquidity even more critical.
With the probability of a rate cut in October rising, it is advisable for investors to lock in current higher yields, as fresh bond issuances and deposit rates after a cut will likely be lower.
A balanced allocation in the current context could be:
40% in long-duration (2-8 years) investment-grade corporate bonds of different ratings for yield stability and credit safety
30% in shorter-duration bonds (6–18 months) to maintain reinvestment flexibility if cuts are delayed
20% in high-yield fixed deposits to lock in rates before any policy easing
10% in cash or T-bills for tactical opportunities
This mix ensures steady returns, captures current high rates, and retains flexibility to respond to shifting market conditions.Q) If someone is a risk-averse investor and wants to deploy say Rs 10,00,000 – what would you recommend? How to deploy the money – please give bifurcation in percentage terms.
A) For a conservative investor, I would recommend a diversified bond portfolio that balances risk and return, with a higher allocation to AAA and AA-rated bonds for safety, and a smaller portion in higher-yielding A and BBB-rated bonds for incremental returns.
Bonds available on Online Bond Purchase Platforms (OBPPs) are rated by agencies such as ICRA, CARE, and CRISIL. Ratings from AAA to BBB are considered investment grade, with AAA being the safest and offering the lowest coupon, and BBB being the riskiest within investment grade, offering the highest returns to compensate for the risk.Suggested allocation for conservative investors would be:
50% (₹5,00,000) in AAA and AA-rated corporate bond issuances available on OBPP platforms, targeting 8–9.5% p.a.
25% (₹2,50,000) in RBI Floating Rate Savings Bonds or tax-free bonds for sovereign safety
15% (₹1,50,000) in high-yield investment-grade bonds (A and BBB ratings) for incremental returns
10% (₹1,00,000) in high-quality fixed deposits for assured returns and immediate access
Suggested allocation for moderate investors:
40% (₹4,00,000) in AAA and AA-rated corporate bonds for stability
30% (₹3,00,000) in high-yield investment-grade bonds (A and BBB ratings) for better returns
20% (₹2,00,000) in quality equities or equity-oriented hybrid funds for growth potential
10% (₹1,00,000) in high-yield fixed deposits or short-term instruments for liquidity
This structure provides predictable cash flow, principal protection, and the opportunity to lock in attractive yields before potential rate cuts.Q) How can investors determine the right balance between bonds, equities, and hybrid instruments in their portfolios amid changing market dynamics?
A) A portfolio should be tailored to one’s risk–return profile and aligned with specific financial goals. Equity investments are best suited for long-term horizons of five years or more, given their potential for higher returns and short-term volatility.
Debt instruments, on the other hand, work well for goal-based investing, where capital protection and predictability of returns are important. Emergency funds can be parked in a mix of high-yield fixed deposits and AAA-rated corporate bonds to ensure safety, liquidity, and reasonable returns.
As a starting point, many investors use the “age in bonds” guideline — for example, a 40-year-old keeps 40% in bonds — and adjust based on goals and volatility tolerance. In a high-uncertainty environment, tilting 5–10% more toward fixed income and hybrids can preserve capital without giving up all growth potential.
Q) How much can you earn regularly/monthly from investing in corporate bonds in India? Is there a way we could get a Rs 50,000 per month type pension from investing in bonds. What would be the calculation?
A) Yes, it is possible to generate a fixed monthly income from corporate bonds, much like a pension. The key variables are your investment corpus, the yield on the bonds, and how you structure the payout schedule.
For example, if an investor targets ₹50,000 per month (₹6 lakh annually) in income, here’s the approximate corpus required at different yields:
At 8.5% yield, you would need ~₹70.6 lakh
At 9.5% yield, you would need ~₹63.2 lakh
At 11% yield, you would need ~₹54.5 lakh
The income flow can be structured through a laddered portfolio of corporate bonds — buying multiple issues with staggered maturities and interest payment dates. This ensures interest payouts are received every month, rather than in quarterly or half-yearly lumps.
Investment-grade issuances available on OPBB allow investors to build a diversified bond portfolio that blends returns, risk, and maturity.
This approach works not only for ₹50,000 per month, but can be scaled up or down depending on your income needs. For example, targeting ₹1 lakh per month at an 11% yield would require ~₹1.09 crore, while ₹25,000 per month would need ~₹27.2 lakh.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
