FPI investments in bonds cross $2 billion in March
Mumbai Foreign portfolio investors (FPIs) have turned net buyers of Indian bonds so far this year, aided by the central bank’s liberalization of the FPI framework, along with its announcement of a $5-billion foreign exchange swap to boost liquidity.
FPIs have bought bonds worth $384.25 million since January. Interestingly, foreign investors have bought bonds to the tune of $2.03 billion in March alone, clocking the biggest monthly buy since October 2017.
To be sure, in the first two months, FIIs were net sellers of $1.65 billion bonds. In 2018, they had sold $6.74 billion worth of bonds.
Experts tracking the market said that two recent events have led to this optimism—the Reserve Bank of India’s announcement of letting FPIs use the voluntary retention route (VRR) for bond purchases and the central bank’s dollar swap announcement. They said that along with VRR gaining momentum, there is also reasonable certainty on the political front and the economy in terms of growth and inflation.
Nitesh Ranjan, general manager (treasury operations), Union Bank of India, said that introduction of VRR to get long-term funds into the country is definitely one of the triggers for the surge in inflows.
“Coupled with this (VRR) is RBI’s announcement of the foreign exchange swap, which will decrease the hedging cost for FPIs. Moreover, it is certain that rate hikes in the US will not happen, rather a rate cut is possible and, therefore, India becomes attractive again,” said Ranjan.
Bloomberg data showed FPIs were net sellers of $245.96 million in the first three months of calendar year 2018.
Vaswar Mitra, country treasurer (India), Barclays, argued in a Mint column on March 6 that the balanced development of bond markets can be best achieved when regulators design and implement a comprehensive and consistent regulatory framework for FPIs.
“Both FPIs and debt issuers would enthusiastically welcome VRR as a structural step towards broadening and deepening the onshore bond markets,” said Mitra.