With an aim to countervail fall in rupee and offset the slowdown in FPI flows amid rising crude oil prices, RBI may issue NRI bonds, a report said. Nearly $30-35 billion may be raised through NRI bonds by the central banks to support rupee and offset slowdown in FPI flows, The Indian Express reported citing a BofAML research note. With Chinese firms listing in global benchmark indices like MSCI, FPI inflows to India will be impacted, the report said. The listing in benchmark indices will shift up to $ 100 billion to China market by 2019.
“Our China strategists estimate that possible entry into benchmark indices could push up to $ 100 billion into the China markets by end-2019. This cannot but slowdown FPI equity flows into India markets given rising valuations and political uncertainty,” BofAML said in a research note. FPIs have pulled out Rs 42,000 crore from Indian debt and equity markets since April this year.
NRI bonds are forex deposits raised from non-resident Indians at attractive rates for 3-5 years, with some lock-in and an implicit RBI guarantee.
“We grow more confident that the RBI will issue a fourth tranche of NRI bonds to raise, say $ 30-35 billion, to offset slowdown in FPI flows on listing of China paper in various benchmark indices at a time of higher oil prices,” the report said.
“We grow more confident that the RBI will issue a fourth tranche of NRI bonds to raise, say, USD 30-35 billion, to offset slowdown in FPI flows on listing of China paper in various benchmark indices at a time of higher oil prices,” the report added.
As per the report, RBI will issue NRI bonds if the global oil prices persist at USD 70/bbl. “We think that there is a rising case for issuing NRI bonds. Every NRI bond issuance has been effective in curbing INR volatility,” the report noted