Despite global volatility and a general risk aversion prevailing in the market, foreign investors continue to remain positive on the Indian debt market with the last six sessions bringing in a net inflow of $389.28 million.
Latest Bloomberg data shows foreign portfolio investors (FPIs) have put in a net investment of $483.50 million into Indian debt since the beginning of 2016.
Ashish Vaidya, head of trading and ALM at DBS India, points out the one thing that attracts foreign investors to Indian debt is the high yield.
“Despite the recent bouts of volatility in the market, net FII investment in Indian debt continues to remain positive on account of the recent auction of FPI limits and also as falling crude prices are considered to be a long-term positive for India,” Vaidya added.
If there is one proof that supports the story of FPI confidence in the country’s debt, it would be the response seen during the FPI debt auction in January when foreign investors bid more than twice the notified amount of R7,396 crore to get limits on government securities. Even during the recent debt limit auction, FPIs put in bids worth twice the notified amount of R3,476 crore.
“Beginning of January, foreign investors had bid to acquire limits on R7,396 crore of government securities; about R6,200 crore, of which has come in and there has been a net outflow of about R3,600 crore on the credit FPI limit. This is one of the main reasons why the net FPI investment in Indian debt continues to be in green territory,” Vaidya said.
However, it is the corporate bond segment where FPI interest has remained subdued over the last few months. Latest depository data showed FPIs have utilised 71.89% of their overall quota of $51 billion.
Nonetheless, foreign investor interest in the country’s debt may continue to remain positive till the interest rate differential between the developed economies and India remains fairly reasonable and the currency does not depreciate beyond a certain level, market experts say.