Hike in FII limit to ease funding pressure on firms

Written by Markets Bureau | Mumbai | Updated: Jan 4 2009, 04:31am hrs
The government decision to increase the limit for foreign institutional investors from $6 billion to $15 billion is seen as a welcome move by market participants and is expected to lower funding pressure experienced by corporates, reckon analysts and fund managers.

This is a welcome move and we will see easing of funding pressure on corporate funding. It will also be attractive for the FIIs as the rates are attractive at the moment, said Nilesh Shah CIO, and deputy managing director of ICCI Prudential AMC. Yes, this is a definite positive for Indian companies, added Mandar Gupte, a CFO with a multinational in India.

India Inc has been facing severe funding pressure and have resorted to issuing debt instruments in the local market. Some of them have gone back to issuing fixed deposits and the rates have been attractive at around 11.5 to 12.5%. There are large issuances lined up in the year ahead as companies like Reliance Industries, Tata Motors have plans for issuing debt. Also, the debt market has been an important source for funds for India Inc. During 2007-08, around 1.77 lakh crore was raised

Milind Barve, managing director, HDFC Mutual Fund says, It will help the credit market as with the increase in the liquidity the lenders will now start offering funds to the credit worthy customers. The governments decision to hike the FII investment limit in the corporate bonds will boost the debt market. The corporates will get the funds at competitive rates. Overall, the package will help both the economy and markets.

In the whole of 2008, FIIs were net purchasers to the extent of $2.9 billion, limit of $2.8 billion the Securities & Exchange Board of India had in the list released by it in October. FIIs had wanted to invest more in the corporate bonds segment as well. We have been given tight allocations and this will ease off the allocation made by Sebi, said a senior executive with an FII. Sebi regularly announces limits for individual FIIs based on the bids that they make for investments in bond issues.

However, the opening of the limit for FIIs might not see an immediate rush as the overseas funds are grappling with investment issues as well. So, once that is resolved, there could be a substantial inflow. Moreover, developing the market for exchange traded corporate bonds will see more inflows as there will be proper exits for investors, reckons Devendra Nevgi, CEO, Quantum Asset Management.