New measures on anvil to attract sovereign wealth funds

Looking to attract larger inflows from sovereign wealth funds and foreign pension funds, central government and financial sector regulators have renewed their efforts to make Indian markets, especially government bonds, much more appealing to such investors.
The government and regulators are of the view that overseas investments by sovereign wealth funds, multilateral agencies, endowment funds, pension funds, insurers and foreign central banks are much more stable in nature, as compared to institutional investors and hedge funds.
However, these investors follow a much more stricter due diligence process before taking their investment calls and give a lot of focus on a stable policy regime, a senior official said.

With a new government in place at the Centre with a clear majority, there are expectations for a much more stable policy environment in India and this appears to be the right time to work towards attracting such investors, he added.
Among others, capital markets watchdog Sebi and banking regulator RBI were asked to identify areas of concerns, if any, for such investors in the current regulatory framework and a final decision in this regard could be announced in the forthcoming Union Budget next month, the official said.
Responding to a query on sovereign wealth funds not showing much interest in government securities, Sebi Chairman U K Sinha recently said that the situation needs to be looked at for some more time.

"Your point that not much money has come in, I would like that you should wait for some more time because there has been a change of government and people outside India are waiting for the new policies. My personal feeling is that it will be successful but we can wait for some more time," he had said.

At present, USD 10 billion is the maximum investment limit allowed for entities such as sovereign wealth funds in government securities.
However, just about 21 per cent of this limit is currently exhausted and there is still scope for investments totalling over Rs 42,000 crore.

On the other hand, the limit of USD 20 billion worth government securities under portion meant for all foreign investors including the institutional investors, hedge funds and others, has been exhausted to the extend of nearly 98 per cent and the free limit currently stands at just about Rs 2,000 crore.
In treasury bills also, the investment limit of up to USD 5.5 billion has been utilised to the extend of only 43 per cent. In the corporate debt category, foreign investors are allowed to invest up to USD 51 billion, out of which less than 40 per cent have been exhausted.

The cumulative investment limit for the entire debt market currently stands at USD 81 billion (about Rs 4 lakh crore), about half of which is still to be exhausted as the total investments stands at about Rs 2 lakh crore as of now.