Foreign portfolio investors (FPI) on Wednesday showed huge interest in acquiring investment limits in corporate bonds. The lowest bid came in much higher than what was seen during the auction of limits on central government securities. The lowest or the cut-off bid that FPIs put in for acquiring limits in corporate bonds stood at 8 basis points on Wednesday’s auction compared to 1.75 basis points seen for government securities (G-secs) on Tuesday. The highest bid stood at 12.01 basis points as against 2.5 basis points for G-secs. Against a notified amount of Rs 7,418 crore for which investment limits were to be auctioned, 29 bidders put in bids for an amount of Rs 10,442 crore.
“Several funds wanted to pick up limits,” said Ajay Manglunia, EVP and head – fixed income markets at Edelweiss Securities. It is noteworthy that such an auction mechanism for corporate bonds is being conducted after a period of over four years. The last auction was held in March 2013 when the cut off stood at 0.55 basis points and the highest bid stood at 1.10 basis points. The Securities and Exchange Board of India last week issued a circular halting all on-tap investments by FPIs into corporate bonds after limit utilisation crosses 95% of the overall quota. Latest depository data indicates that FPIs have utilised 96.88% of the permitted quota of Rs 2.44 lakh crore.
Bond arrangers are hoping for some increase in the investment limits while some even believe the limits for masala bonds, which have become very popular, will be segregated from the overall limit for FPI investments in Indian debt. FE had reported on Wednesday that investment bankers have requested the Reserve Bank of India (RBI) and the finance ministry to consider enhancing the limit for investments by foreign funds in Indian paper by tweaking the exchange rate that was taken into account for setting the $51 billion investment limit.
The limit was set when the Rupee was hovering around 50 to the dollar but the currency has now depreciated to levels of 65. Using the present rate would enhance the $51 billion into Rs 3.31 lakh crore— thereby increasing the overall limit by over Rs 80,000 crore. However, the central bank might be reluctant to make such concessions considering the Rupee has been appreciating following massive inflows into Indian debt. FPIs have so far infused $16.8 billion into Indian debt in 2017. The strengthening Rupee is likely to have prompted the central bank to shore up its forex reserves to a record high of $389.05 billion.