FIIs lap up debt papers on hope of stable Re, govt

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Expectation of a stable government and a stronger currency is encouraging foreign institutional investors (FIIs) to advance debt to Indian companies freely.

Of the $11.3 billion FII inflows this year through May, $5.3 billion has been into debt, mainly corporate debt, Sebi data shows. Domestic companies have been scouting for cheaper funds overseas mostly for working capital requirements.

FIIs can invest up to $81 billion in debt instruments in India — $30 billion in government securities and $51 billion in corporate debt. Overseas institutional investors have pumped in $17 billion in government debt and $34 billion in corporate debt so far.

Ajay Manglunia, senior vice-president for credit and fixed income at Edelweiss Securities, says the corporate debt limits are getting utilised faster than government debt.

“A stable rupee is going to attract a large number of foreign institutional investors to India,” he said.

A stable currency and comfortable interest rate differentials are attracting FIIs to invest in corporate debt in India. One of the big issuances last week was that of Power Finance Corporation, which raised Rs 1,600 crore at 9.30 per cent. Exim Bank, another issuer, raised Rs 250 crore three-year money at 8.95 per cent.

Data from the Reserve Bank of India on Thursday showed Indian firms, including IndianOil, Air India and IDFC, raised $3.55 billion from overseas markets in March, slightly less than $4.3 billion in February.

IndianOil raised $810 million and Intel Technology India $150 million through the approval route while public carrier Air India mopped up $99 million each in two tranches and Dewan Housing raised $70 million.

Among others, Exim Bank and Hindustan Petroleum raised $500 million each, IDFC $300 million, Sterling Biotech $206.46 million and Bharat Petroleum $198.58 million.

Ashutosh Khajuria, president of treasury at Federal Bank, said, “FIIs may be interested in corporate debt, as there are very liquid or tradable bonds of one or two year tenures. In G-sec, there are few liquid securities of over one year tenure.”

The rupee continues to gain ground against the US dollar, with the inflation numbers coming lower than anticipated. Headline inflation declined to 5.20 per cent in April after inching up to 5.70 per cent in March from 5.03 per cent in February.

“The domestic currency opened on a stronger note against the American unit on Thursday and remained strong through the session. Amid the optimism over the election results and consistent gains in the stock market, the rupee is leading the gains among emerging Asian currencies,” Abhishek Goenka, CEO of India forex Advisors said in a report.

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