FPIs bid more aggresively for corp bonds than G-secs

By: | Published: September 6, 2017 2:33 AM

Against a notified amount of Rs 1,710 crore for corporate bonds, 47 bidders put in bids to acquire limits for an amount of Rs 4,499 cr.

FPIs, dollarAs of now FPIs are permitted to invest billion’ or Rs2.44 lakh crore’ into corporate bonds.

Foreign portfolio investors (FPIs) continue to chase yields in the Indian market. On Tuesday, the highest bid at the auction for limits to buy corporate bonds hit 56 basis points. This is higher than the previous high of 25 basis points reported at the previous auction.

Against a notified amount of Rs 1,710 crore for corporate bonds, 47 bidders put in bids to acquire limits for an amount of Rs 4,499 crore.

Appetite for corporate bonds appears to be very strong. The lowest or the cut-off bid that FPIs put in on Tuesday was 45 basis points. This compares well with the two basis points that they bid at the auction for government securities (G-secs) on Monday.

The Securities and Exchange Board of India had earlier issued a circular halting all on-tap investments by FPIs into corporate bonds after limit utilisation crosses 95% of the overall quota. Latest depository data indicates that FPIs have utilised 99.37% of the permitted quota of Rs 2.44 lakh crore.

Auctions are conducted when investment limits get freed up either due to redemption or sales in the market. There is an increasing anticipation in the market that the Reserve Bank of India (RBI) might hike the FPI investment limits in corporate bonds from the current Rs2.44 lakh crore.

According to investment banking sources aware of the matter, the ministry of finance is in consultation with the central bank regarding this matter.

Bankers say the limits could be hiked in different ways but the most talked-about one points towards changing the exchange rate pegged to the investment limit mentioned in dollar terms.The argument being put forward is that the value of the Rupee has depreciated since the original limits were fixed in dollar terms.

As of now FPIs are permitted to invest$51 billion’ or Rs2.44 lakh crore’ into corporate bonds — both figures are mentioned on the depositories side by side. The exchange rate for this limit was set when the Rupee was hovering around 50 to the greenback.

If the exchange rate is adjusted to say Rs 65, the total available limit of $51 billion will translate into Rs 3.31 lakh crore. That would bring down the utilisation level to just over 71% of the permitted quota leaving lot of room for further FPI investments.

However, an alternate theory says that the RBI is highly unlikely to make this concession considering that it would increase the limit by over `80,000 crore at a time when inflows into Indian debt are at their highest and the Rupee has strengthened appreciably. FPIs have so far pumped close to $19.8 billion into Indian debt following which the Rupee has been on an upward move.

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