FOREIGN Institutional Investors (FIIs) shift assets from equity to infra bonds

 

Current open Long Term Infra Bond Application form

 

 

FOREIGN Institutional Investors (FIIs) may be net sellers in the domestic equity market, but they have not yet lost faith in the world's most populous democracy yet. These big investors have simply shifted focus to the country's debt market.

In October and November, FIIs invested Rs 5,540 crore or over $1 billion in long-term infrastructure debt instruments of companies, which have a oneyear lock-in and a residual maturity exceeding one year, new data put out by the capital markets regulator Sebi showed.

Attractive yields in India and expectations of a drop in interest rates, which would lead to capital appreciation on higher coupon bonds, are driving these savvy investors to the bond street. The Union government had revised the modalities for FII investment in this category of debt instruments in September by reducing the lock-in period to one year with one-year residual maturity.

FIIs have been allowed to invest up to $5 billion (Rs 26,951 crore) out of the total limit of $25 billion in long-term corporate infra bonds in India.

Earlier, FII investment in long-term corporate infrastructure bonds had a minimum lock-in period of three years, though FIIs were allowed to trade among themselves during the lock-in period. However, the investments could be sold to domestic investors during this period.

Over the past two months, some clarity has emerged on the inflation front and also the fact that growth is falling, which has led the market to believe that monetary cycle reversal is round the corner. This effectively makes the debt instruments attractive.

The reduction of the lock-in period to a third kick started activity in the bond market. October and November saw FIIs invest Rs 2,095 and Rs 3,445 crore in corporate debt long-term infra bonds with one-year lock-in and oneyear residual maturity. In contrast till September 30, FII investment in corporate long-term infra bonds with three-year lock-in and with three-year residual maturity had by and large remained unutilised.

The total FII limit in such corporate bonds is Rs 22,419 crore. This means a limit of Rs 16,879 crore is still available for FII investments in such bonds. However, analysts are not sure if the remaining investment limit in long-term corporate infra bonds will receive equally strong FII response given the macro-economic conditions globally, which has triggered to a flight to safety.

The situation outside is not great. It needs to be seen what kind of institution and sector FIIs are investing in. The investment might be going to project specific debt or it could be private equity investments through structured products, which may later be converted into equity. Sebi monthly data on FIIs' debt investment showed that they have almost exhausted the limit set for such investments in Indian gilts. As of November 30, FII investment limit in government debt of Rs 43,650 crore was almost exhausted with just Rs 651 crore additional limit available.

As per Sebi data, FIIs have invested Rs 39,607 crore in the debt segment so far in 2011 while they have been net-sellers to the extent of Rs 2,969 crore in the equity segment.

 

---------------------------------------------

 

Application form for Applying for Tax Saving Long Term Infrastructure Bond  

 

Current open Long Term Infra Bond Application form

 

 

Submit filled up application    Collection canter near you

 

 

---------------------------------------------

Buy Tax Saving Mutual Funds Online by selecting the Mutual Fund Schemes

Mutual Funds Online

 

Download Tax Saving Mutual Fund Applications / Forms from all AMCs:

Download Mutual Fund Applications