FIIs stay off corporate debt market since Oct

The government’s recent efforts to prop up foreign institutional investments in corporate debt market has not found many takers in the last one month.

Foreign institutional investors (FIIs) have been hesitant to invest in corporate debt instruments on fears of downgrade in ratings.

Officials manning the custodial desk of some foreign banks said the concerns over corporate growth slowing down and higher default risks have deterred FIIs from investing in corporate debt papers.

“FIIs are skeptical about the credit prospects. The dollar availability has improved substantially in the last one month, but no one wants to put money in the Indian debt market now as the concerns over slowdown, defaults are high,” said a senior official at a foreign bank.

The government doubled the ceiling on FIIs’ investment in corporate debt to $6 billion (about Rs 28,800 crore) from $3 billion on October 15 and Securities and Exchange Board of India (Sebi) had allocated the fresh limit to FIIs on October 22.

Sebi had allocated $2.8 billion (Rs 13,440 crore) limit to FIIs in the list released by it in October.

The last day for utilising this limit is Thursday, failing which Sebi will allocate the unutilised limit to the next set of FIIs.

However, until now, none of the FIIs have utilised the allocated limit for investment in corporate bonds, the custodial banks said. In fact, Sebi data shows that FIIs have been sellers in debt market in October, while they were buyers during July-September.

In October, FIIs sold corporate debt instruments worth $507.6 million, while they bought such papers worth $766.30 million in September. The FIIs continued to be on the sell side in corporate debt papers even in November so far, foreign bank officials said.

FIIs had bought corporate debt instruments worth $294.80 million in August and $891.00 million in July.

Prior to doubling the FII limit in corporate bonds in October, the government had hiked the ceiling to $3.0 billion from $1.5 billion on June 20.

There was marked interest from foreign investors in debt market after the government hiked corporate debt limit in June.

While FIIs were buyers of debt instruments during July-September, they were sellers in equities. Foreign investors sold debt papers worth $1.97 billion in September, $511.90 million in August and $251.00 million in July. However, with the sentiment improving slightly following the recent liquidity-easing measures from Reserve Bank of India, some FIIs are likely to show interest in bond market from next week.