BackFIIs poured in record money into govt bonds on Wednesday: Sebi
The huge demand on Wednesday has ensured that Rs1.21 tn or more than 97% of the Rs1.24 tn govt security limit has been exhausted
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Mumbai: Foreign institutional investors (FIIs) bought a record $2.64 billion of Indian government bonds on Wednesday, according to data released by the Securities and Exchange Board of India (Sebi) on Thursday.
The demand for the government securities ensured that the limit of such bonds available for sale to foreign investors has almost been exhausted, which means FIIs will now have to bid for the bonds through a Reserve Bank of India (RBI) auction.
Bank treasurers said the huge demand for government bonds is good news because it’s a vote of confidence on the country’s improving macroeconomic fundamentals.
“The demand has to be from an FII who is comfortable to invest such a huge amount because he is confident about the stability of the currency and bond yields which are offering 8.5% plus returns. Clearly, he plans to hold on to his investment for the long term," said Ananth Narayan, co-head of wholesale banking, South Asia, Standard Chartered Plc.
India’s 10-year bond yield had closed at 8.48% on Wednesday, down from Tuesday’s close of 8.53%, likely because of the demand for the bonds.
The rupee has stabilized in the broad 60-61 per dollar band in the last three months on continuous inflow of dollars into the country and as expectations that the Union government will implement reforms that will help kick-start growth in India.
This is a change from around the same time last year when the rupee had plummeted to a record low of 68.85 per dollar.
So far in 2014, foreign funds have poured in $16.47 billion in the local debt markets, buying both government as well as corporate bonds after pulling out $8.8 billion in 2013.
Though there is no clarity on who could be the buyers of the bonds on Wednesday, Bloomberg reported that US based JP Morgan Chase & Co. has bought about $2.4 billion of the bonds on behalf of its institutional clients, citing three unnamed fixed income dealers.
Debt traders speaking on the condition of anonymity said JP Morgan could have bought the securities on behalf of some multilateral developmental agency like the International Finance Corp (IFC) and Asian Development Bank (ADB).
The huge demand on Wednesday has ensured that ₹ 1.21 trillion or more than 97% of the ₹ 1.24 trillion government security limit has been exhausted, meaning Sebi will now have to auction the remaining limit.
Sebi auctions the government bond limit for FIIs after 90% of the limit is exhausted. Till Tuesday, only 84% of the limit was used by FIIs, according to Sebi.
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