FIIs back in bond mart with a bang, go slow on stocks

Tags: News

Overseas investors net buyers of $3.6b debt this calender

Foreign institutional investors are returning to the Indian bond market in a big way this calendar after having sold $8 billion worth of Indian debt papers in 2013.

Latest figures available from capital markets regulator Sebi show FIIs have been net buyers of Indian debt to the tune of $3.617 billion (Rs 22,275.70 crore) and net sellers of equities worth $109 million (Rs 758.20 crore) so far this calendar.

In February alone, FIIs have been net buyers of Indian bonds worth $1.55 billion (Rs 9,667.30 crore) so far, while they have been net sellers of equities worth $234.44 million (Rs 1,472.50 crore), Sebi data showed.

This marks a trend reversal from last year, when overseas investors put in $20 billion in equities but sold Indian bonds worth $7.97 billion.

“We feel FIIs will come back to equities after the general election. They are waiting on the sidelines to see if the election throws up a clear mandate, possibly for the NDA,” said Gaurang Shah, assistant VP of Geojit BNP Paribas. “FIIs will be going light on stocks till the election,” he said.

FIIs’ renewed interest in the bond market comes after the Reserve Bank of India last year hiked FII investment limit in government securities and corporate bonds by $5 billion each, taking the total limit in domestic debt to $75 billion. The central bank’s move came as part of a series of efforts to bridge the ballooning current account deficit.

The central bank also did away with the three-year lock-in period for FIIs in government securities (G-secs), which was a first for India.

FIIs were net sellers of secondary market debt papers worth $10.47 billion in 2013. In the primary market, they were net buyers of bonds worth $1.82 billion.

This big withdrawal from debt trimmed net FII inflows to India to $9.4 billion in 2013 despite $17 billion worth of investment in local stocks.

The overseas institutional investors ended January as net buyers of both equities and debt, putting in a net of $2.186 billion (Rs 13,322.90 crore) in debt and $124.63 million (Rs 714.30 crore) in equities.

“With the Indian currency remaining stable at 61-62 level, Indian debt papers give FIIs better returns compared with the US treasury paper. US treasury yields 2 per cent while Indian 10-year G-secs on an average give about 8.8 per cent,” said Sudip Bandyopadhyay of Destimoney Securities.

“On a fully-hedged basis, Indian gilts offer an attractive option for FIIs,” he pointed out.

Bandyopadhyay echoed Shah’s view that FIIs would return to stocks once the elections are over, and it would be a big positive if one party with a clear majority comes to power at the centre.

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