After having utilised the investment limits in government securities and corporate bonds, foreign portfolio investors (FPIs) have now turned their attention to state development loans (SDLs), of which they have bought very little so far.
After having utilised the investment limits in government securities and corporate bonds, foreign portfolio investors (FPIs) have now turned their attention to state development loans (SDLs), of which they have bought very little so far. According to the latest depository data, FPIs are understood to have bought over Rs 600 crore of SDLs on Wednesday. Market sources indicated that foreign investors bought the 10-year Tamil Nadu SDL worth Rs 490 crore in a single trade along with various other state papers. Clearing Corporation of India (CCIL) data indicate that a single trade worth Rs 490 crore was carried out on Wednesday involving the 7.52% Tamil Nadu SDL maturing in 2027. The paper was trading close to 7.23%. Tamil Nadu, Karnataka, Maharashtra and Gujarat are some of the attractive papers in the SDL category.
FPIs have utilised 7.23% of the permitted quota of Rs 28,500 crore till Wednesday under the general category compared to 4.98% on Tuesday, indicating fund flows into SDLs. According to market sources, FPIs are believed to have infused another Rs 400-500 crore in SDLs on Thursday. “Now that the limits in government securities and corporate bonds have fully been utilised, FPIs are marching towards whatever is left in the Indian debt space. We could see more buying soon.
State papers offer best of the yields among G-secs and corporate bonds along with low sovereign risk,” said Ajay Manglunia, EVP and head – fixed income markets at Edelweiss Securities. Interestingly, FPIs had so far maintained a safe distance from SDLs over lack of transparency on states finances. Tuesday’s transaction might be the beginning of a buying spree in this segment even as other parking slots in Indian debt have already been taken.
Currently, FPIs in the general category are allowed to invest up to Rs 28,500 crore in SDLs while those in the long-term category are allowed to invest Rs 4,600 crore. Interestingly, the long-term quota has not been utilised so far. Market participants are still keeping their fingers crossed expecting authorities to provide some relaxation in the investment limits in corporate bonds.
FE had reported on Wednesday that investment bankers have requested the Reserve Bank of India (RBI) and the finance ministry to consider tweaking the exchange rate that was taken into account for setting the $51 billion investment limit in corporate bonds by FPIs. The limit was set when the rupee was hovering around 50 to the dollar. The currency has now depreciated close to 65 levels. Any consideration of the present rate would automatically translate the $51 billion into Rs 3.31 lakh crore, there by increasing the overall limit by over Rs 80,000 crore.