In Oct, foreign investors pump Rs 16,990 crore in debt market

FPIs withdrew Rs 5,784 crore in September and another Rs 17,524 crore in August, the highest net outflow by FPIs in a single month since 1997. The segregated data prior to 1997 are not available.

Reversing the trend of outflows in the previous two months, foreign investors have pumped Rs 16,990 crore into the Indian debt market in October, aided by the Reserve Bank of India’s new policy initiatives and global cues, especially the US Fed move to delay interest rate reduction. The debt market is expected to attract more foreign investment following the recent relaxation in debt limits announced by the Reserve Bank.

According to figures collated from exchanges, the net inflow by foreign portfolio investors (FPIs) in the stock market stood at Rs 3,295 crore between October 1-16 while Rs 13,695 crore came to the debt market. Before this, FPIs pulled out over Rs 23,000 crore from the capital market (equities and debt) in the past two months on fears of an economic slowdown in China, which led to a global sell-off, and fears over US Fed cut.

FPIs withdrew Rs 5,784 crore in September and another Rs 17,524 crore in August, the highest net outflow by FPIs in a single month since 1997. The segregated data prior to 1997 are not available.

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Investor appetite returned after Reserve Bank of India (RBI) Governor Raghuram Rajan last month pulled off a surprise by announcing a bigger-than-expected policy rate cut of 50 bps to 6.75 per cent — the lowest in four and a half years — to spur growth.

On September 29, the RBI relaxed curbs on foreign ownership of government debt by raising the cap to 5 per cent, a move that will bring in an additional Rs 120,000 crore in Government Securities. Foreign institutional holdings in G-Sec will be denominated in rupees instead of dollars and the cap will be raised in phases to 5 per cent of outstanding debt by March 2018, RBI said in its fourth bi-monthly monetary policy for the current financial year.

The move comes ahead of the US Federal Reserve’s anticipated rate hike, first in over nine years, that may impact emerging markets. “In aggregate terms, the RBI move is expected to open up room for additional investment of Rs 120,000 crore in the limit for central govt securities by March 2018 over and above the existing limit of Rs 153,500 billion for all government securities (G-sec),” RBI Governor Raghuram Rajan said.