Moneycontrol
Last Updated : Jun 01, 2017 05:30 PM IST | Source: Moneycontrol.com

FPIs buy $3 billion of Indian debt in May, investing $10 bn so far in 2017

Foreign Portfolio Investors (FPIs) net bought Indian debt securities worth around USD 3 billion in May, taking their total to over USD 10 billion for 2017 so far.

Foreign portfolio investors (FPIs) net bought Indian debt securities worth around USD 3 billion in May, taking their total to over USD 10 billion for 2017 so far.

In fact, in the first 2 months of the current fiscal year -- April and May – FPIs have already net bought over USD 5 billion of Indian debt. Considering that at the beginning of the fiscal year most analysts expected a total net inflow of around USD 5 billion for the whole year, this level is staggeringly high.

At end of day today, the 10-year benchmark bond yield closed the session at 6.62 percent, down 4 basis point from its previous close. Even the old benchmark, which bears a coupon of 6.97 percent and is still traded more than the new one, was trading at 6.77 percent. Bond prices and yields move in opposite directions.

“India offers one of the highest real interest rates in the world,” said Karthik Srinivasan, Senior Vice President at rating agency ICRA. “Most debt funds have reported high returns in recent times and if you add the appreciation of the rupee to the mix, the total return is way higher than what the investor might get elsewhere.”

FPIs are allowed to invest a total of Rs 1.84 lakh crore in central government securities, according to Securities and Exchange Board of India guidelines, and Rs 2.44 lakh crore in corporate bonds. However, a significant portion of this limit remains unutilised in both corporate bonds and gilts, with the current utilised investment limit in the former at 86 percent and in the latter at 84 percent.

“Flows have been very strong so far and they are likely to remain that way till the next major trigger, because there is still more room to invest,” said Dwijendra Srivastava, Head, Fixed Income at Sundaram Asset Management Company. “We expect USD 25 billion to come in over the course of the financial year, into both equities and debt, but it could end up being higher than that.”

However, he added that inflows could possibly reverse as and when the pace of rate hikes picks up in the US, as the spread between Indian and US bond yields would become narrower. The Federal Reserve is expected to raise interest rates by 25 basis points at its upcoming policy meet.
First Published on Jun 1, 2017 05:30 pm
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