Foreign Institutional Investors (FII) were allocated corporate debt worth $ 4.4 bn (Rs 20,000 crore) at the auction conducted on the National Stock Exchange on Friday by Securities and Exchange Board of India (Sebi). The bonds were distributed among 18 FIIs while another eleven FIIs were allocated government debt, worth approximately $400 million (Rs 2,000 crore).

The data was put out on the Sebi website. With FIIs having bought corporate bonds worth approximately $3.5 billion in March alone and additional purchases of $ 72.46 million in April till April 15, 2010, their cumulative investments in corporate bonds and government securities have crossed $ 12 billion. Given the little headroom left to hit cap of $15 billion for corporate bonds, the Securities and Exchanges Board of India (Sebi) had, last week, decided to allocate the unutilised limit for bonds through a bidding process on the National Stock Exchange.

In a circular issued last week, the regulator trimmed the limits for corporate bonds, which can be allotted to individual FIIs to Rs 2,000 crore, while the minimum amount that can be bid for, is Rs 200 crore. For government paper, the limit has been lowered to Rs 200 crore from Rs 300 crore. However, FII investments in government securities are understood to have almost hit the $5 billion ceiling with the unutilised portion at just around a few hundred million dollars.

The appetite for Indian paper is strong because the yields offered by Indian companies are higher than what investors would get overseas for a similar risk profile. With the business environment improving, there is no shortage of good credit risk and many more companies will become investment-worthy.

Interest rates expected to rise anywhere between 100 and 150 basis points over the next year or so, there should be no dearth of takers for corporate bonds.

Dealers say the money is parked more or less evenly in paper of shorter-term maturities as also longer-term maturities. Data put out by the SEBI shows that there has been a sharp rise in trading volumes in the last three months of 2009-10, with the volume in March at a record Rs 67,000 crore plus and at levels of around Rs 53,000 in January.