FPIs buy nearly $1.3 billion worth of bonds in July so far on fresh rate cut hopes

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Published: July 18, 2019 2:07:20 AM

The benchmark 10-year yield (7.26% yielding paper maturing in 2029) rose by 2 basis points (bps) on Wednesday, to close at 6.35%. The 10-year bond on Tuesday fell to a two-and-half year low of 6.33%. The rupee depreciated by 10 paisa to close at Rs 68.81 on July 17.

FPI surcharge, FPI, FPI Tax, FPI bond, economy news, post tax returns,  tax returns, FPI full form, market newsThe NSDL data show that as of July 16, the limit for FPI investments in corporate bonds is Rs 2.05 lakh crore. The utilised level is 67.76%.

Foreign portfolio investors (FPIs) have been buying Indian bonds in July in anticipation of another rate cut by the Reserve Bank of India (RBI) in the August monetary policy meet, following a moderation in the fiscal deficit number to 3.3% against the projected 3.4% deficit target announced in the Interim Budget.
Foreign portfolio investors have bought close to $1.3 billion worth of bonds till July 16, the highest in the last two months.

Dealers believe the rise in foreign fund flows in the debt market can be attributed to the increase in the FPI limits in G-secs to 6% from 5.5% on March 27. “We are seeing increased participation from FPIs into Indian G-secs following the moderation in fiscal deficit numbers and an increase in the limits,” said Ajay Manglunia, MD & head-institutional fixed income, JM Financial.

The benchmark 10-year yield (7.26% yielding paper maturing in 2029) rose by 2 basis points (bps) on Wednesday, to close at 6.35%. The 10-year bond on Tuesday fell to a two-and-half year low of 6.33%. The rupee depreciated by 10 paisa to close at Rs 68.81 on July 17.

The quota for FPI investment in gilts is Rs 2.34 lakh crore as on 17 July 2019, according to CCIL data — the utilisation as was 73.92% for gilts. The NSDL data show that as of July 16, the limit for FPI investments in corporate bonds is Rs 2.05 lakh crore. The utilised level is 67.76%.

Traders believe majority of inflows by FPIs is into government securities and not into corporate bonds. “The utilisation for corporate bonds have gone down at a time when there are huge inflows into Indian debt, as majority FPIs are buying G-secs,” said Mahendra Jajoo, head-fixed income, Mirae Asset Global.

FPIs invest in various debt market instruments such as government bonds (G-secs), state development loans and corporate bonds, but with prescribed limits and restrictions by the central bank.

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