Govt opens tap for govt securities worth $2.6 bn for FPIs

Government has increased the investment limit in government securities for Foreign Portfolio Investors who will be able to invest an additional USD 2.6 billion from Monday.

New Delhi: Foreign Portfolio Investors will be able to invest an additional USD 2.6 billion (Rs 16,431 crore) from today onwards in various government securities, including those of the states.
Out of this, investment limits worth about Rs 5,600 crore are being allotted through an e-auction, while the rest would be available on tap.

In further opening up, the limits would be enhanced by another Rs 16,600 crore from January 1 ownwards.

This follows decisions by the RBI and Sebi earlier this month to allow greater foreign fund flows into the government securities, which are generally favoured by Foreign Portfolio investors (FPIs) over the corporate bonds in India.

The cap has been now raised to Rs 1,70,000 crore from Rs 1,53,569 crore previously. As against the previous limit, the total investments by FPIs in government bonds stood at Rs 1,53,109 crore (USD 23.6 billion) as on October 9, as per data available with the NSDL (National Securities Depository Ltd).

In comparison, the total investments by FPIs in corporate bonds stood at Rs 3,39,660 crore as against a cap of Rs 4,14,323 crore.
While the FPIs have utilised about 82 per cent of available limits in corporate debt, they have less than 10 per cent free limits available in government bonds despite the increase in the cap.

The enhanced limits include a first-ever separate category for state development debt securities where FPIs can invest up to Rs 3,500 crore with effect from today. This would be doubled to Rs 7,000 crore from January 1.

The incremental limit of Rs 7,463 crore for Long Term FPIs shall be available for investment on tap with effect from today, while the separate additional limit for (SDLs) shall also be available on tap.

With regard to FPI investments in central government securities, it has also been decided to put in place a security-wise limit of 20 per cent of the amount outstanding under each Central Government security with effect from today.

Existing investments in the Central Government securities where aggregate FPI investment is over 20 per cent may continue, Sebi said.
However, fresh purchases by FPIs in these securities shall not be permitted till the corresponding security-wise investments fall below 20 per cent.

The Central Government securities in which the aggregate FPI investment is more than 20 per cent of the outstanding would be placed in a negative investment category in which fresh investments would not be permitted.

Also, all future investments by Long Term FPIs, including the limits vacated when the current investment by a Long Term FPI runs off either through sale or redemption, will now be required to be made in Central Government securities having a minimum residual maturity of three years