Scale up investment or lose bond allocation, FIIs told
Sebi has told FIIs that their allocations on bond investment will be taken way if they fail to scale up their investments, reports Our Bureau.
By TNN |
MUMBAI: Sebi has told FIIs that their allocations on bond investment will be taken way if they fail to scale up their investments, reports Our Bureau.
Foreign portfolio funds have invested only 20% of what they are allowed in government securities, while the collective investment in corporate bonds stands at 30% of the limit. Unlike equities, there are upper limits on the total FII investment in bonds.
For gilts the limit is $2bn, for corporate bonds it is $1.5bn and for hybrid instruments, like upper tier II bonds issued by commercial banks, the cap is $500m.
FIIs put money in bonds only when they spot an arbitrage opportunity. The transaction involves borrowing money from overseas, investing in Indian bonds and hedging the currency risk through a forward cover. Such deals were rampant before the US Federal Reserve pushed up rates abroad through a string of rate hikes.
However, with interest rates in hardening overseas, there is very little opportunity to make money from such arbitrage deals. As a result, several FIIs, even after taking the investment allocation, has hardly used it.
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Around 30 FIIs have been permitted to invest in bonds, but only six are active in the debt segment. In a meeting with FII representatives and custodian banks here on Tuesday, the regulator has spelt out that allocations will be reviewed if investments do not pick up. The meeting was addressed by Usha Narayanan, executive director, Sebi.Recently, the cap on the combined FII investment in government securities has been raised. From the present level of $2bn, it will go up to $2.6bn in December and to $3.2bn in March.
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