Overseas investors have pumped in around Rs 35,000 crore in the Indian debt market in 2012, highest in two years, largely on account of increased investment limits in bonds and the weak rupee.
Foreign Institutional Investors (FIIs) were gross buyers of debt worth Rs 2,06,847 crore, while they sold bonds amounting to Rs 1,71,859 crore - a net inflow of Rs 34,988 crore (USD 6.64 billion), as per the data provided by market regulator Sebi. This was the highest net investment by FIIs in debt securities since 2010, when they had infused Rs 46,408 crore.
The huge inflows came despite the number of registered FIIs in India dipping to 1,759, from 1,767 at the end of 2011.
Market experts attributed the huge inflows into debt market to the increase in the ceiling on both corporate and government bonds, coupled with weakness in rupee against the US dollar.
"The steps taken by Sebi are positive for FIIs which have helped in reviving FII sentiment towards the debt market," Geojit BNP Paribas Research Head Alex Mathew said.
"Indian currency which is hovering around the 55-level has also helped FIIs to stay invested in the domestic market," CNI Research Head Kishor Ostwal said.
Since the opening up of Indian markets for FIIs in 1992, they have made a cumulative net investment of Rs 1.56 lakh crore (USD 33 billion) in the debt segment.
The government has increased FII limits in government securities and corporate bonds by USD 5 billion each, taking the total investment limit in domestic debt to USD 75 billion.
Besides, weak local currency was another major reason for FIIs to invest in debt instruments. The rupee has depreciated about 3.5 per cen this year.
The regulator has also taken a slew of measures to boost investment in debt sector. In September, Sebi gave a breather to foreign investors by allowing them to carry forward 50 per cent of their debt holdings to the next calendar year.
Sebi also said FIIs would be allowed to use the unutilised funds in corporate debt infra long-term bonds without obtaining its prior approval till the overall FII investments reaches 90 per cent of the limit.
At the end of 2012, there were a total of 1,759 FIIs registered with Sebi and 6,359 sub-accounts that overseas investors use to invest in India.