The financial markets of the world have undergone a sea change during the last few decades and the same winds of change have also entered the Indian capital markets. With the advent of liberalization, a variety of new financial instruments are replacing traditional avenues of finance and India Inc. has flown to overseas markets to get finance for expansion and other purposes. Amidst these, a new and popular array of innovative instruments is a type of bonds called Foreign Currency Convertible Bonds (FCCBs) that have provided access to cheaper overseas debt for Indian companies. The paper tries to explore the various dynamics of these innovative bonds that have lured India Inc. Besides, these instruments are also helpful from macro (economy) point of view and strengthens the motive behind the study of these instruments.

Efficient and well-regulated capital markets are significant determinants of growth for any developed economy. During the last decade, unprecedented developments in the global financial markets and the reduction of boundaries between domestic and overseas markets have led to the formulation of one unified and integrated global financial market. This has provided the potential investors and the borrowers with a variety of options for lending and raising funds to and from any corner of the world.

Looking at the present scenario, the Indian capital market is emerging as one of the ‘best-regulated’ and ‘transitionary’ markets across the world. The story of the Indian capital market unveils an efficient ‘trading and settlement’ system, high levels of disclosure and an environment of innovation. All this has further given a push to the birth of various new avenues of raising funds that were earlier non-existent in the Indian capital market, for example, Global Depository Receipts (GDRs) and Foreign Currency Convertible Bonds (FCCBs). As per Times News Network, India alone accounts for 68% of the FCCBs issued in the Asia-Pacific market, for example from Japan.

Keeping all these in view, the paper tries to enunciate some fundamental concepts relating to FCCBs and also explores the pros and cons of these innovative instruments as a contemporary source of finance. Data representing FCCB by India Inc. since January 2005 to July 2006 is shown in Annexure. The organization of the paper is as follows: It starts with the introduction. Next is the conceptual framework of FCCBs. Then comes the rationale of issuing FCCBs by India Inc. as well as the valuation criteria of FCCBs. After this, FCCBs scenario in India is discussed. The paper ends with the conclusion.

Foreign Currency Convertible Bonds, FCCBs, Global Financial Avenues, Global Depository Receipts, GDRs, Indian capital markets, Traditional avenues, Global financial markets, Well-regulated capital markets, Foreign Exchange Management Act, FEMA, Foreign Currency Convertible Notes, Transitionary markets, Euro markets, External Commercial Borrowings.