India’s government is planning to allow foreign investors to increase purchases of the nation’s corporate debt, a person familiar with the matter said. The cap on foreign portfolio investments may be raised by $5 billion to $10 billion, the person said, asking not to be identified citing rules. Overseas money managers, attracted by strong returns, have already bought more than 99 percent of all the Indian sovereign and corporate notes they’re allowed to purchase.
The prospect of a return to world-beating economic growth following a tax overhaul by Prime Minister Narendra Modi is attracting credit and equity investors. Foreigners own about 7.5 percent of India’s government and corporate debt, compared with 30 percent in Indonesia and Malaysia, Aberdeen Asset has estimated. China has also stepped up efforts to draw overseas investors to its debt market, starting a trading link with Hong Kong in July.
Finance Ministry spokesman D.S. Malik wasn’t immediately available for comment.
In July, foreigners bid for 104.42 billion rupees ($1.6 billion) of corporate debt quotas, exceeding the 74.18-billion rupee target and taking inflows to near the overall cap of $51 billion.
That sale was the first for corporate debt after the market regulator in 2012 allowed global funds to invest without seeking approval until overall holdings touched 90 percent of the cap, a limit that was raised to 95 percent in July.
The increase in the quotas is likely to be staggered, according to the person. Masala bonds — notes issued outside India but denominated in rupees — are likely not be included in the quota and may have a separate limit, the person said, adding both the central bank and the finance ministry have agreed for a carve out.
Details are still under discussed and subject to change, the person said.