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FII cap in debt mkt raised by $10 bn

India has paved the way for greater fund flow into the debt market.

Foreign institutional investors (FIIs) can now invest more funds in Indian debt markets with the government today raising the cap on FII funds in these papers by USD 10 billion to USD 30 billion.

In addition,the government has raised the FII cap in bonds floated by companies engaged in the infrastructure business,which will provide much-needed funds for the crucial sector.

The caps were raised as FIIs are close to reaching the existing cap of USD 20 billion,having invested over USD 17 billion in Indian papers.

Finance Minister Pranab Mukherjee said the move will help enhance the flow of FII funds into debt markets.

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The government allowed FIIs to invest up to USD 5 billion more in both government bonds and corporate papers,after they reach the current cap of USD 5 billion and USD 15 billion in the two instruments,respectively.

In addition,FIIs can additionally invest USD 5 billion in bonds of infrastructure companies and government bonds with a residual maturity of over 5 years.

“The government has increased the current limit of FII investment in government securities by USD 5 billion,raising the cap to USD 10 billion and the incremental limit of USD 5 billion be invested in securities with residual maturity of over five years,” an official statement said.

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It further added that the current limit of FII investment in corporate bonds has also been increased by USD 5 billion,raising the cap to USD 20 billion.

The FII limit in corporate bonds with residual maturity of over five years issued by companies in the infrastructure sector would also be increased by USD 5 billion.

Mukherjee told reporters,”This is a welcome announcement and I do hope that the handicap which FIIs are facing will be removed considerably and there will be more of a flow to the capital markets.”

With the Bombay Stock Exchange benchmark Sensex crossing

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the 20,000 points mark on Tuesday,a correction may come anytime in the stock market,according to brokers. In fact,the Sensex has shed 140 points in the next two days. If a correction happens sharply,the debt market is expected to witness greater inflows from FIIs.

The statement said the move would provide avenues for increased FII in debt securities and would help investment in the infrastructure sector and the development of government securities and corporate bonds markets.

The decision was made,the statement said,in view of India’s growing “attractiveness as an investment destination and the need for additional financial resources for the country’s infrastructure sector,while at the same time balancing the monitoring policy.”

Earlier in the day,the Finance Minister said infrastructure bottlenecks,particularly power,would be a challenge to 9-10 per cent economic growth in the country.

First published on: 23-09-2010 at 19:03 IST
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