G-Sec auction draws lukewarm FII response

The auction of government bonds for foreign institutional investors conducted by the Securities and Exchange Board of India

Written by Sandeep Singh | Mumbai | Published: July 5, 2012 1:23:37 am

The auction of government bonds for foreign institutional investors (FIIs) conducted by the Securities and Exchange Board of India (Sebi) on Wednesday after the enhanced FII investment limit in government securities received a lukewarm response as the FII’s bid for only 72 per cent of the amount available for auction.

According to a source close to the development,within the category of government debt long-term,the FIIs bid for securities worth Rs 20,469 crore against the availability of securities worth Rs 28,496 crore.

The demand for the corporate debt long-term infra was lower at 63 per cent as the FIIs bid for Rs 19,777 crore as against the availability of Rs 31,387 crore.

On June 25,the Reserve Bank of India announced to raise the FII investment limit in government securities by $5 billion from $15 billion to $20 billion,following which Sebi decided to conduct the auction for eligible FIIs.

While the government bonds have received full subscription in the past,economists are not very enthused by the response received by the government debt.

“We expected the government limit to be fully subscribed and it is surprising to see the level of bidding,” said Abheek Barua,chief economist at HDFC Bank. “I think FIIs are building a credit risk on a possible sovereign downgrade going forward.”

On the other hand the demand for corporate bonds were further down but were on expected lines as it has not been in much demand as of now.

Experts say that the fact that the lock-in clause of three years could have acted as a deterrent and restricted more participation in the current environment. However in the past,government papers with a lock-in of 5-years have been fully subscribed.

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