FIIsí search for returns boosts Indian debt
But foreign investors have poured in over $25 billion into Indian markets in 2012 so far, a level similar to the pre-Lehman boom period and most bankers expect the inflows to sustain in the coming months as well. While equity continues to dominate investment, the Indian bond market is fast catching up.
Bankers said that the relatively high yield and return that Indian bonds offer against other emerging countries lures FIIs here. The yield on government bonds across tenures are currently around 8-8.25%, while for corporate bonds, they are higher at 8.5-9.0%. Over the last six months, government bond yields have remained firm around 8%, prompting foreign investors to increase investment.
Sovereign bonds of the US offer anywhere between 1.5% and 2.50% yield, while German bunds offer a measly 1.5-2.0%. Among the BRICS nations, baring Brazil, bonds of all countries offer a yield below that of Indian debt. Brazilian bonds fetch a yield of around 9%. Unlike equities, outstanding FII investment in bonds is subject to an overall limit of $65 billion, now raised to $75 billion. Within the limit, sub-limits with respect to type of instruments, investors and tenure restrictions have been mandated.
Out of the $65 billion, around $52 billion is allocated to FIIs through monthly auctions by sebi wherein they pay a premium to acquire investment limits. FIIs have bid aggressively at these
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