Foreign institutional investors (FIIs) on Thursday scrambled to get their hands on corporate debt, paying higher premiums for limits auctioned. While R3,736 crore worth of corporate bonds that have no tenure restrictions were auctioned, FII bids totalled R6,341 crore. The cut-off premium paid on the limits, auctioned by the Securities and Exchange Board of India (Sebi) was 5.5 basis points whereas the highest premium paid by FIIs for such bond quotas in the past has been 4 bps. FIIs see profits in Indian paper after the Reserve Bank of India (RBI) cut the cash reserve ratio (CRR) by 25 bps on Monday to 4.5%. One-year corporate bond yields have fallen nearly 10 bps after the CRR cut and long-term corporate bond yields may ease once the CRR cut takes effect on September 22 and liquidity improves.
The government?s move to open up foreign direct investment (FDI) in multi-brand retail, aviation and broadcast and further measures expected to be announced for fiscal consolidation have improved the sentiment considerably. Since January, FIIs have bought $4.61 billion (R25,050 crore) worth of debt, according to provisional data from Sebi.
Meanwhile, Sebi also auctioned R23,488 crore of limits of gilts with tenures of five years and more on Thursday. Limits in infrastructure bonds worth R6,939 crore were also auctioned in which FIIs will have to buy bonds with a minimum tenure of 15 months and lock in their investment for one year. The response to these two categories was lukewarm and premiums were ultra-low as has been the trend.
Approximately Rs 13,255 crore worth of limits for long-term gilts were allocated while FIIs bid and got Rs 5,794 crore worth of limits in infra bonds. Limits in gilts with no tenure restrictions were unavailable for auction this time. Sebi auctions gilts only when a minimum Rs 1,000 crore worth of limits are free. As on August 31, FIIs had almost exhausted their investment limits in gilts.
Foreign investors who have fancied Indian debt for the last eight months, have grabbed more limits at the auction on expectations that the policymakers are finally getting their act together on reforms and growth. However, they want to steer clear of investments that require them to compulsory lock-in investments and have minimum tenure restrictions. This is reflected in the small quantum of bids that Sebi received for long-term government bonds and infrastructure bonds on Thursday.
