The appetite of foreign investors for Indian debt paper seems to have slowed somewhat with the cut-off bid having come off from 30 basis points at the last auction in January to 2.2 basis points at the auction on Monday. Moreover, the quantum of subscription for the R3,011 crore of gilts on offer was R3,448 crore; past auctions have seen far more enthusiastic responses. The number of participants this time around too was lower at 32 compared with 53 last time.
At Monday’s auction, the highest bid to acquire limits for government securities (G-secs) stood at just 3.01 basis points compared with the 50.10-basis-point level seen at the previous auction. According to Ajay Manglunia, executive vice-president at Edelweiss Securities, these are the lowest levels seen over the last two to three years.
In the last four sessions, foreign portfolio investors (FPIs) have sold $290 million worth of bonds; since January they have been net buyers with purchases of $167.7 million.
Foreign investors have so far always bid aggressively to acquire limits on G-secs with the bid size mostly ranging in multiples of the notified amount. It is noteworthy that Indian debt is deemed attractive by FPIs given the lucrative yields and a relatively stable currency versus many emerging market peers.
The rise in yields over the last few weeks may also have been a source of concern to FPIs. The yield on the 7.72% 2025 bonds hit 7.87% on Monday — the highest level since August 2015. The new 10-year benchmark yield has also hit 7.75% which is the highest level since it was introduced in January this year.
Market experts believe foreign investors seem to be expecting a further rise in yields at a time when any expectations of another rate cut have faded out on the back of rise in inflation.
“FPIs also look at the potential of capital appreciation when they invest in a country’s debt,” Manglunia pointed out, adding that with no expectations of immediate rate cut in the interim period and G-sec yields marching up in recent times, foreign investors may be in a wait and watch mode.