Date:18/09/2008 URL: http://www.thehindubusinessline.com/2008/09/18/stories/2008091852451400.htm

Back FIIs invest record $2.2 b in debt on September 16

Ravi Ranjan Prasad
Priya Nair

Mumbai, Sept. 17 Net investments in Indian debt instruments made on September 16 by foreign institutional investors amounted to a staggering $2.2 billion (Rs 8,904 crore), the combined data provided by custodians to SEBI showed.

This constitutes one of the highest one-day inflows into debt recorded by FIIs in recent times. The amount is sizeable, according to Mr Srinivasa Raghavan, President and Head – Treasury, IDBI Gilts Ltd: “This reflects the shift from equity to debt due to the global turmoil,” he said.

Meanwhile, details of daily trades in corporate bonds put up by SEBI, (based on reports sent by the BSE, the NSE and FIMMDA) also indicated a surge in daily turnover in corporate bonds on September 16 to Rs 957 crore, the highest so far for the month.

“We have to see whether the FII investments are in Government securities, corporate bonds or in Treasury bills. Debt is now a safer option. Also, the liquidity boost given by the RBI by way of allowing banks to borrow more against their SLR securities will ease the yields in the short term, such as on T-bills or on bonds up to five years,” said Mr Raghavan.

However, due to the cap of $5 billion in debt investments by FIIs, the current investments may not rise much, he added. In June, SEBI raised the FIIs’ investment ceiling in Indian debt to $5 billion from $3.2 billion.

Individual FIIs have been given a ceiling of $200 million for investment in the Indian debt market. So far in 2008, FIIs have invested $4.185 billion (Rs 16,884.10 crore) in Indian debt, according to SEBI data.

On Tuesday, the rupee’s value dipped to 46.97/98 per dollar and finally closed at Rs 46.90. On September 16, the yield on 10-year Indian paper was 8.08 per cent, compared to just 3.31 per cent on 10-year US Treasury paper; the yield on 5-year Indian paper was 8.65 per cent, against 2.42 per cent on five-year US paper.

FIIs were net sellers of equities worth Rs 1,200 crore on Tuesday, and their cumulative net selling has amounted to Rs 5,662 crore in September so far.