FIIs lap up debt paper in no time

Written by Markets Bureau | Mumbai, Jun 23 | Updated: Jun 25 2008, 04:47am hrs
Foreign institutional investors (FIIs) may be dumping Indian equities in the wake of the oil shock, but they have shown tremendous interest in investing in Indian debt paper, including government securities (G-Secs) and corporate debt. The rush is so huge that the enhanced debt investment limits that were notified and auctioned by the Securities and Exchange Board of India (Sebi) on June 16, on a first-come-first-serve basis, has created a wait list of FIIs. The limits were enhanced after a review of the external commercial borrowing (ECB) policy by the ministry of finance .

As the enhanced limits were to be allotted on a first-come-first-serve basis, the FIIs started applying from the midnight of June 15 and the entire enhanced limit was exhausted within six to seven minutes. Some successful bidders include BNP Paribas, Lehman Brothers, JP Morgan Securities Asia Pvt Ltd while those on the wait list include ING Bank NV, Citigroup Global Markets (Mauritius), New Vernon India and ABN Amro Asia Pacific PTD.

A Balasubramaniam, CIO, Birla Sunlife Mutual Fund, said, This clearly shows there is an appetite for Indian G-Secs, which look attractive to FIIs. With yields on 10- and 20-year government papers going up and G-Sec prices falling, it is essentially a good opportunity for investors with a long-term horizon of one or two years.

TC Nair, wholetime member, Sebi, said, With the interest rates falling to historic low in the Western markets and the US in particular, this provides an arbitrage opportunity to these investors. These investors borrow funds at lower level in their home country. Deploying this in domestic market can earn up to 7-8% through G-Secs and corporate debt instruments. The domestic interest rates are expected to stay firm for a while, which will drive foreign investors to Indian debt market.