Indian Firms Embrace Domestic Bond Market for Acquisitions Amid Mutual Fund Demand

In a significant shift in corporate financing strategies, Indian companies are increasingly turning to the domestic bond market to fund acquisitions, driven by robust demand from capital-rich mutual funds and evolving regulatory landscapes.

This trend has led to a record ₹4.75 trillion in corporate bond sales in 2025, marking a 15% increase over the previous year. Notable transactions include JSW Paints' planned ₹50 billion bond issuance to acquire Akzo Nobel’s Indian unit, Manipal Hospitals' ₹53 billion bond raise for Sahyadri Hospitals, and Torrent Power's consideration of ₹84 billion in bonds to purchase L&T’s thermal business. Reuters

During the COVID-19 era, Indian companies primarily relied on internal funds and equity for acquisitions. The current shift towards debt financing reflects a broader change in corporate financial strategies. Declining local yields and higher offshore borrowing costs have made domestic borrowing more attractive, further boosting local bond market activity. Reuters

Mutual funds, managing over ₹2 trillion in corporate bond funds, are increasingly central to this trend, attracted by appealing yield spreads. Reuters

The State Bank of India (SBI) has formally requested the Reserve Bank of India (RBI) to permit banks to finance corporate acquisitions. Currently, Indian regulations prohibit banks from lending for mergers and acquisitions, compelling companies to turn to non-banking financial companies (NBFCs) or issue bonds to secure funds for such activities. SBI Chairperson Challa Sreenivasulu Setty suggested initiating this change with large, publicly listed companies to ensure transparency and governance. Reuters

"We've been formally requesting the regulator... that at least start with some listed companies where the acquisitions are more transparent and are approved by the shareholders," said SBI Chairperson Challa Sreenivasulu Setty. Reuters

"Some of these things are restricted because in the past, they have been misused," noted Ruchin Goyal, managing director and senior partner at consulting firm BCG. Reuters

The increased accessibility to bond financing allows companies to pursue strategic acquisitions without depleting internal resources or diluting equity. The surge in bond-financed acquisitions underscores the evolving dynamics of India's financial markets and the growing role of mutual funds in corporate financing. SBI's request to the RBI highlights a push for regulatory reforms to support corporate growth and financial flexibility.

The growing reliance on the domestic bond market for acquisition financing reflects a significant evolution in India's corporate financing landscape. As companies continue to leverage favorable market conditions and mutual funds' appetite for yield spreads, this trend is likely to shape the future of corporate growth and financial strategies in the country.