Foreign portfolio investors’ (FPIs) appetite for government securities (G-secs) seems to have weakened to some extent with the limits at Monday’s auction undersubscribed. FPIs bid for R10,439 crore worth of securities against the notified amount of R12,715 crore, primarily due to the uncertainty surrounding the outcome of the US presidential election, scheduled to take place on Tuesday.
In comparison, at the previous auction FPIs had put in bids worth R9,458 crore against a notified amount of R9,300 crore.
So far this year, FPIs have been sellers in the secondary markets, net selling $647.4 million in Indian paper since the beginning of 2016. In fact, since the beginning of October, FPIs have net sold Indian debt securities worth $908.3 million and were buyers in only 10 out of 22 trading sessions.
According to sources, the lowest successful bid on Monday came in at 0.0001 basis point, as against 0.015 basis point last time. Also, the notified amount at the auction this time around — R12,715 crore — was higher than the usual amount notified for these auctions. Market participants pointed out that foreign investors have been cutting their positions in domestic debt for some time now, given that for most of them the year is coming to a close and they need to book profit on their investments. The impending rate hike by the US Federal Reserve, expected to be announced next month, has also played a part in FPIs looking to exit their positions in the Indian market.
Given the relatively high demand for domestic debt instruments, yields on government bonds have been declining over the past few months. The 10-year benchmark yield currently stands at 6.83%, having fallen over 60 bps in the last six months.
Govt to sell 4 securities for R15,000 crore
The government will sell four dated securities for R15,000 crore on November 11, of which up to 5% will be allotted to individuals and institutions.
The auctions will be conducted using multiple price method, the Reserve Bank said in a statement. The stocks will qualify for the ready forward facility.