Foreign portfolio investors’ (FPIs) investments in the Indian debt market have crossed a record $19 billion this year. Friday saw the first outflow of $107.35 million in almost two weeks, taking the net inflows so far to $18.96 billion. In chase for high yields, foreign investors having nearly utilised the investment limits available in both quotas —central government securities and corporate bonds. The Indian debt market had witnessed a net outflow of $6.45 billion in 2016. Latest depository data shows that the general category FPIs have utilised 96.99% of the permitted limit of Rs 1.87 lakh crore in central G-secs while long-term FPIs have utilised 83.12% of the allotted limit of Rs 54,300 crore. At the same time, foreign investors have utilised 98.57% of the permitted limit of Rs 2.44 lakh crore in corporate bonds.
Talking about the strong fundamentals of India, Jayesh Mehta, MD and country treasurer at Bank of America Merrill Lynch, asserts he has never seen these kind of macros in his life. “The fiscal deficit and the current account deficit are under control, the growth is much better than the rest of the world and we have more than adequate forex reserves. And that’s what the foreigners are seeing. Many a times, the foreigners are more bullish on India than the Indians themselves,” Mehta points out.
Interestingly, foreign investors have shown little interest in state development loans (SDLs) even as the utilisation remains at 7.95% of the permitted limit of Rs 28,500 crore. However the category for long-term investors for Rs 4,600 crore remains unutilised. Even as flows surged into the Indian market leading to the appreciation of the rupee, Sebi temporarily halted all masala bond issuances till FPI investments in corporate bonds falls below 92% of the permitted limit.
“If a firm has received the approval for issuing masala bonds and the limits have been blocked, there has to be a timeline in which the limits should be utilised. That needs to be figured out and the regulator may come out with something very soon,” Mehta observes. Bankers also believe that the rupee might touch higher levels towards the end of the year. “If you look at it historically, the rupee has always depreciated around this time of the year. But this time, even that has been proved wrong. By the end of the year you may see the currency hitting the 62-level,” Mehta said.