In their chase for high yields, foreign institutional investors (FIIs) have poured in $3 billion into Indian corporate bonds so far in 2015, data from the depositories show. With the government bond investment limit of $30 billion fully used, FIIs have been buying corporate paper since September 2014.
FIIs now hold roughly $34 billion worth of corporate bonds and have used up 67% of the total $51 billion worth of limits available to them. FIIs have been buying corporate bonds since September 2014 after the investment limit in government bonds was exhausted.
With the US Federal Reserve saying it would be “patient” and perhaps not raise interest rates immediately, dollars have continued to pour into India as foreign investors chase yields. Bankers believe the flow of dollars is unlikely to abate as Indian bonds give one of the highest returns among emerging market countries. “Indian bonds still hold an edge over other markets and FIIs prefer to invest here,” said a bond trader with a foreign bank.
In January, FIIs bought bonds issued by HDFC, National Housing Bank, Power Finance Corporation, and Power Grid Corporation.
Indian bonds gave a return of around 16% in 2014, one of the highest among emerging market economies, thus making them lucrative investment for foreign investors. With expectations of interest rate cuts in 2015, FIIs have chosen to build bond holdings to cash in on
FII investment limit of $30 billion in government bonds is at 99%, with no room for further purchases. This limit was exhausted in August. As and when limits were freed due to redemptions or sale, FIIs had lapped up by paying record premiums at auctions where these limits were offered.