Foreign institutional investors have breached their investment limit in short-term commercial papers by more than $500 million, data from depositories show. FII investment in commercial papers is capped at $2 billion (R9,978 crore) within the overall limit of $51 billion for corporate bonds.
As of March 3, FIIs held roughly $2.65 billion (R13,232 crore) worth of commercial papers. While a small part of the breach could be due to a change in the exchange rate, much of it is largely due to actual buying by FIIs from the secondary market, dealers said.
Investments made between February 26 and 28 resulted in a breach in the limit, data shows. FIIs bought $379 million worth of debt on February 26 and $696 million on February 28. A breach of the investment limit could prompt the Securities and Exchange Board of India to ask FIIs to offload some of their investments, dealers said.
According to bond traders in foreign banks, so far no such instructions have been issued by the capital markets regulator. “I think since the overall investment in corporate bonds is well within the $51 billion, they have gone a little lenient on it,” said an official at a foreign bank. “If the Sebi insists on offloading, then the investor who has invested recently or the last one to buy would be asked to offload,” said a bond trader at another foreign bank. Officials of the regulator were unavailable for comment.
On February 14, the investment limit in commercial papers was lowered by $.15 billion for FIIs. However, at that time, the total investment made by investors was far below the available limit.
Subsequently, most FIIs have picked up short-term papers, both government treasury bills and corporate commercial papers due to lucrative yields on these.
The 91-day treasury bill yield has been around 9% over the last one month and commercial papers of top rated companies fetch a yield of at least 10.0-10.5%.