The Securities and Exchange Board of India (Sebi) on Friday announced an increase in FII-investment limits in government securities or treasury bills to $2.60 billion from the earlier $2 billion.
MUMBAI: The Securities and Exchange Board of India (Sebi) on Friday announced an increase in FII-investment limits in government securities or treasury bills to $2.60 billion from the earlier $2 billion.
But the hike would fail to have an impact on the already inconsequential FII investments in debt, say fund mangers and mutual fund heads.
“FIIs have always been more enthusiastic about equity investments rather than debt and so the increase would hardly have any impact,” says Arjun Marphatia, CEO of Quantum Mutual Fund.
In fact, the current investment limits too have not been harnessed to the fullest extent by FIIs. Cumulative debt investments by FIIs in gilts or T-bills until January 19, 2007, stood at $1069.70 million, according to the Sebi website.
“Forward premiums are currently too high. Unless they reduce to a level that hedging becomes profitable, FIIs wouldn’t find government securities appetising enough,” says Ramanathan K, fixed income head of ING Vysya Mutual Fund.
“The interest rate scenario is too volatile for FIIs to invest in gilts. Most of the current FII inflows are into short-term securities such as treasury bills,” said a senior official from ABN Amro Asset Management, requesting anonymity.
Going by the guidelines in the Reserve Bank of India’s credit policy, this limit would further be enhanced to $3.2 billion by March 31, 2007.
But unless the interest rates shoot up significantly, additional inflows into government securities are highly unlikely, Ramanathan points out.
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