FIIs can invest in government debt without auction
MUMBAI: Purchase of Indian government bonds will get easier for foreign institutional investors as the regulator scrapped the rule that they purchase permits from the markets regulator in an auction before they actually buy bonds.
Government bond purchases for foreigners will now be on par with corporate debt where they can buy freely up to 90% of the $51-billion limit. Once their holdings reach 90%, they have to buy permits from Sebi. Foreigners' ownership of Indian government bonds is capped at $25 billion.
"Allowing foreign investors to invest directly would make yields a little more attractive as the upfront payment for bidding under the auction route would be saved. So the overall return on their G-sec investments would go up to that extent," said Hitesh Shah, director, SK Capital Advisors.
"Further, there is no negative carry if they are not able to utilise the limits allocated within the prescribed time limit as was applicable under the auction method."
Government bond purchases for foreigners will now be on par with corporate debt where they can buy freely up to 90% of the $51-billion limit. Once their holdings reach 90%, they have to buy permits from Sebi. Foreigners' ownership of Indian government bonds is capped at $25 billion.
"Allowing foreign investors to invest directly would make yields a little more attractive as the upfront payment for bidding under the auction route would be saved. So the overall return on their G-sec investments would go up to that extent," said Hitesh Shah, director, SK Capital Advisors.
"Further, there is no negative carry if they are not able to utilise the limits allocated within the prescribed time limit as was applicable under the auction method."
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The regulatory move comes amid the new Reserve Bank of India Governor Raghuram Rajan's eagerness to open up markets to showcase India as a dependable and predictable investment destination for overseas capital.
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