Despite a massive quantum of corporate bond investment limits being offered in Wednesday’s auction, foreign portfolio investors (FPIs) oversubscribed the quota, indicating a renewed interest in corporate debt after the lull in December. Against a total of Rs 13,756 crore of investment limits being made available, FPIs put in bids worth Rs 15,961 crore. Although the cut-off bid came in at a meagre 0.2 basis points, this is still better than the previous auction when there was full allocation of limits due to demand being lower than supply. Wednesday’s auction also saw the number of bidders increase to 49 compared to 40 during the last auction. Ananth Narayan, a money market expert believes that the low auction cutoff could mean that some investors will view Wednesday’s quota as a near-free option to invest over the next few days. “However, given the recent rise in yields, INR bonds do look attractive to FPIs,” he added. Ajay Manglunia, EVP at Edelweiss Securities, points out that the low cut-off does not imply that the investor interest was lacklustre. “Compared to last time, there was a better demand for limits as foreign investors are actively back to the market unlike December. Despite the quantum being so large, we have seen an over-subscription of the limits. Whether they will utilise the entire limits or let a part of it expire is something that has to be watched out for. But the current price levels are attractive enough for FPIs who are always in hunt of better yields,” he said.
The highest bid on Wednesday stood at one basis point, the same as the last time. FPIs had displayed unenthusiastic response in acquiring corporate debt investment limits in December due to year-end sluggishness and expectation of the fresh supply hitting the market in January. Fresh investment limits in corporate bonds worth Rs 17,001 crore opened up for FPIs on January 1. Of this, Rs 9,500 crore has been kept aside for long term FPIs for investment in the infrastructure segment. That left Rs 7,501 crore of limits for general category FPIs, which was coupled with unutilised limits worth Rs 6,255 crore (that got freed either due to redemption or sale) and put up for auction on Wednesday.
The FPI auction is a much-awaited event for some overseas counterparts of foreign banks operating in India. According to a bond market expert, overseas counterparts of many foreign banks use this route to lend to clients in India as the offshore entities enjoy a lower cost of funds. For example, a foreign bank’s counterpart in Singapore or Mauritius might be able to lend to a firm in India at a cheaper rate than the Indian counterpart. As a result, these overseas entities, which are registered as FPIs, subscribe to the debt securities issued by Indian firms through the FPI route. Since the year has just begun, fresh allocation to these FPIs is believed to have added to the investor interest.s