It's not only the soaring Sensex that is catching the fancy of FIIs they are also going upbeat on the Indian bond market where their net investment has crossed the $2bl.
NEW DELHI: It's not only the soaring Sensex that is catching the fancy of FIIs -- they are also going upbeat on the Indian bond market where their net investment has crossed the two-billion-dollar mark for the first time.
Even though the debt segment remains small in comparison to the huge FII inflow worth about 59 billion dollars into the equity space, the net inflows so far into the country's debt instruments has grown to 2.01 billion dollars (Rs 9,305 crore), data available with marker regulator SEBI shows.
At the end of 2006, the net FII inflow into the country stood at 1.33 billion dollars (Rs 6,421 crore).
FIIs have made a gross purchase of about 14 billion dollars (Rs 57,321 crore) so far in the Indian debt market, while their gross sales currently stands at about 12 billion dollars (Rs 48,016 crore).
FIIs have made a net investment of 681 million dollars (Rs 2,883.8 crore) so far in 2007, as against 881.3 million dollars in the entire 2006.
In 2005, the FIIs were net sellers with an outflow of 1.24 billion dollars.
The sharp rise in the FII inflows into the debt market comes after a sharp rise in the interest rates over the past couple of years, which has widened the US-India interest rate differential while driving the foreign investors towards the Indian market.
Besides, market observers believe, the huge inflow into the Indian equity market has also led to FIIs parking a portion of their capital into the debt market as a hedge against any potential downslide in the stocks. The sharp rally in rupee against the US dollar has also led to an increase in the FII interest in the debt market.
Earlier in 2006, most of the FIIs were seen investing in one-year treasury bills, which had given attractive returns.
The interest rate on one-year treasury bills increased from 6.25 per cent to 7.25 per cent in 2006, while the rate on one-year corporate bonds rose from 8 per cent to 9.50 per cent.
The FII inflows into the debt market has also seen an uptrend after RBI said in its October credit policy that the cap on FII investment in government securities would be raised from two billion dollars to 2.6 billion dollars by December 31, 2006, and to 3.2 billion dollars by March 31, 2007.
The FII investment in the corporate debt is currently capped at 1.5 billion dollars.
FIIs are seeking a further hike in the limit, particularly in the corporate debt segment where they are left with only a small unutilised limit.
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