FPI interest in Indian debt paper gathers pace

By: |
March 09, 2016 12:08 AM

Foreign portfolio investors' (FPIs') appetite for Indian debt paper has started to pick up marginally with the cut-off bid to acquire limits on G-secs coming in at 4.41 basis points at Tuesday's auction, according to sources in the bond market.

Foreign portfolio investors’ (FPIs’) appetite for Indian debt paper has started to pick up marginally with the cut-off bid to acquire limits on G-secs coming in at 4.41 basis points at Tuesday’s auction, according to sources in the bond market. At the previous auction, the cut-off stood at 2.20 basis points.

The highest bid that foreign investors were ready to pay to acquire limits on G-secs rose to 20 bps compared to 3.01 bps last time. Against the notified amount of Rs4,681 crore, FPIs bid for Rs6,463 crore with the number of bidders also increasing to 41 this time from 32 in the previous auction.

Foreign investors usually bid aggressively to acquire limits on G-secs with the bid size mostly ranging in multiples of the notified amount. It is noteworthy that Indian debt is deemed attractive by FPIs given the lucrative yields.

Although auction held before the Budget saw a lukewarm response from foreign investors, interest seems to have picked up with bond yields having cooled off.

The ten-year benchmark yield had fallen by 16 basis points in a single day after the government decided to stick to its fiscal deficit target of 3.5% for FY17.

Prior to the Budget, the benchmark yield had hit levels of 7.87%.

Concerns of oversupply of high yielding state bonds and uncertainty over the fiscal deficit target had led to a rise in yields.

With clarity on the fiscal deficit target and consistent open market operation (OMO) purchase by the Reserve Bank of India (RBI), yields have continued to stay close to 7.64% levels over the last few days.

But uncertainties before the Budget had led to some sell-off by FPIs in bonds this year. As on March 4, FPIs remain net sellers of Indian debt at $1.11 billion while in the month of February, foreign investors sold $1.2 billion of debt.

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