Losing sheen: Domestic corporate bonds no more FPIs' favourites in FY21

Not so long ago, overseas investors used to lap up all available limits in the domestic corporate bonds. While the government has more than doubled the legroom for investment, foreign portfolio investors (FPIs) have looked the other way.
 
In March 2018, the total investment limit for FPIs in corporate bonds stood at Rs 2.44 trillion, of which they had utilised Rs 2.2 trillion (about 92 per cent). In March, the limit rose to Rs 5.41 trillion, of which only Rs 1.32 trillion, less than a four, was utilised.
 
“There has been a sustained decline in the FPI utilisation levels. This to some extent highlights the lack of appetite of investors for corporate bonds primarily due to limited liquidity in this market,” said CARE Ratings in a recent note.

 
Not just corporate debt, overseas investors, too, are less enthused by domestic debt in general. In FY21, while the equity markets saw record inflows of $37 billion (Rs 2.74 trillion), the debt market reported outflows of $2.2 billion.
 
Experts say there could be further outflows from the bond market if US bond yields head towards the 2-per-cent mark.