SENSEX NIFTY
Apr 10, 2013, 06.23 PM IST | Source: Reuters

Why foreign investors may be selling Indian debt

The heavy foreign selling by foreign institutional investors over the past five sessions - amounting to a net USD 1 billion - may have more to do with the broad rise in USD/INR forward premiums than fundamental reasons, according to three analysts.

Why foreign investors may be selling Indian debt

The heavy foreign selling by foreign institutional investors over the past five sessions - amounting to a net USD 1 billion - may have more to do with the broad rise in USD/INR forward premiums than fundamental reasons, according to three analysts.

Foreign investors are suspected to have been especially heavy sellers in treasury bills, these analysts said, probably because the yields may no longer justify the higher funding costs from rising currency forward premium costs.

The 3-month USD/INR forward is currently trading at 7.58 percent at a time when the 91-day t-bill yield has come down.

The cutoff for the 91-day t-bill came in at 7.8102 percent at Wednesday's auction, lower than the 7.8519 percent last week.

However, a fall in USD/INR forward premiums could stop the selling, according to these analysts.

"I think you will see a reversal of these trades because forwards have started drifting down. So you will not see further sell-offs," said Manish Wadhawan, director and head of interest rates at HSBC in Mumbai.

The 1-year forward premium rose to an over 14-year high at 380.50 points on Tuesday, but has eased on Wednesday to 370.50 points.

Also Read: Sensex rallies 188 as IT, banks surge; Rel Comm gains 13%

READ MORE ON  Rupee, Sensex, Nifty

ADS BY GOOGLE

video of the day

Retail buyers, MFs are back; midcaps hold promise: Ambit

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.