Premiums rise at govt bonds limit auction, FPIs bullish

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Mumbai | Published: August 11, 2015 12:21:00 AM

Foreign portfolio investors (FPIs) showed renewed vigor in grabbing investment limits in government bonds as premiums rose at the auction on Monday after falling for three consecutive auctions.

Foreign portfolio investors (FPIs) showed renewed vigor in grabbing investment limits in government bonds as premiums rose at the auction on Monday after falling for three consecutive auctions.

FPIs were ready to pay a premium of 48.75 basis points to get hold of limits, higher than the previous auction. The cutoff premium was at 46 bps this time around compared with 40 bps in the previous auction.

Nevertheless, FPIs have been willing payers of hefty premiums to get a slice of the $25 billion investment limit in government bonds. The investment limits in government bonds has been exhausted since August 2014 and thereafter limits that get freed due to redemptions are auctioned.

Sebi has mandated that once 90% of the investment limits are used up, the rest would be given through an auction to FPIs.

The renewed interest comes in the wake of the Reserve Bank of India (RBI) indicating that they would be reviewed regularly. In the bi-monthly policy statement last week, RBI governor Raghuram Rajan said that debt investment limits would be set in rupees rather than dollars as it is now and the central bank will also review the limits every six months. However, any hike in investment limits would come after the regulator can assess the likely move of the US Federal Reserve in hiking rates there, he had said.

Most market participants expect the government bond investment limits to be hiked soon. Even if the limit is set in rupees rather than dollars as it is now, this could increase the potential investment limit by at least Rs 30,000 crore because of the exchange rate benefit. At the auction of limits on Monday, 26 FPIs participated to bid for Rs 556 crore worth of limits offered.

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