Trading volumes in the corporate bonds market have been buoyant with May 2010 witnessing the highest monthly figure at Rs 72,710 crore.
That?s about 9% higher than the reported volume of Rs 66,800 crore in April and way above the Rs 52,620 crore clocked in January 2010.
The rise in trading volumes has been attributed to greater participation by foreign institutional investors (FIIs) who have picked up close to $6.5 billion worth of debt paper this year.
Domestic players have also been active. ?Insurance companies have been buyers since March while mutual funds have been mostly sellers,? said a dealer from a foreign bank.
Trading data is somewhat inflated by about 15-20%. That?s because some FIIs aren?t allowed to buy corporate bonds in the secondary market.
Very often, the parent firm of an FII first picks up the paper in the primary market and sells it to the FII in the secondary market.
Dealers say the money is parked more or less evenly in papers of shorter-term maturities and also longer-term maturities.
The reason why FIIs are buying Indian corporate paper is not hard to understand. Indian paper commands higher coupon rates and even after accounting for heding costs, investors can make about 150-200 bps more on their investments.
The ceiling for FII investments in debt is $15 billion. With little headroom left, Sebi decided to auction bonds on the NSE, on a ?first come first serve basis?in mid-April this year.
Data put out by Sebi shows that companies raised Rs 2.12 lakh crore through corporate bonds in 2009-10, up 22.71% from Rs 1.73 lakh crore in 2008-09. There were 430 issues between January and March. Crisi?s upgrades for Indian paper have exceeded downgrades in the last six months, reversing a three-year trend.