Ahead of the crucial Federal Open Market Committee meeting and a fresh supply of government securities (G-secs) in January, the maximum bid to acquire limits on G-secs by foreign portfolio investors (FPI) is believed to have come down to as low as 14 basis points, according to bond market participants.
In the previous auction held on November 23, the highest bid stood at 40 basis points. The cut-off yield came in at 12.50 basis points on Monday’s auction, compared with 36 basis points last time, market participants said.
Foreign portfolio investors put in bids worth R902 crore, against an available amount of Rs 497 crore. The number of bidders fell to 23, compared to 25 during the previous auction.
Market participants believe that foreign investors do not want to allot higher capital at a time when the US Fed meet is so close. “FPIs also tend to hold back from fresh allotments during the year-end period,” said a fund manager.
Moreover, fresh supply of government securities worth R13,000 is set to hit the markets in January, of which limits on R5,500 crore will be put up for auction while the rest will be available on-tap for long-term foreign investors.
“With such a huge supply set to come within a short time, foreign investors might be looking to hold back from paying higher price to acquire limits on G-secs,” said a market participant. The net foreign inflows into Indian debt stands at $8.16 billion in the current calendar year.