FPIs pump more money into Indian bonds than stocks

MUMBAI: This yr marked the ‘coming of age’ for the common Indian saver, with Nifty’s climb previous Mount 18K dominating the airwaves and column inches. However what has gone nearly unnoticed is that abroad funds, which personal the majority of Indian fairness property, quietly purchased extra of native debt than inventory in a yr that shattered all data – of IPO proceeds, unicorn valuations or SIPs.

Overseas funds purchased bonds value round $4.5 billion beneath Voluntary Retention Route (VRR). Against this, their internet inventory purchases amounted to $3.9 billion this yr, confirmed knowledge from NSDL.

Indian bond returns have been secure. Globally, bonds reportedly yielded unfavorable returns of 5 per cent in 2021.

“The expectation over India’s inclusion within the international bond index triggered curiosity amongst international traders as such an occasion could have a pull-on impact elevating demand for Indian papers,” mentioned A Balasubramaniam, CEO at Aditya Birla Mutual Fund. “The Rupee’s relative power has additionally helped. Any rupee appreciation helps enhance positive factors for international traders.”

Though the rupee is among the worst-performing Asian currencies this yr, the native unit gained in opposition to the greenback in choose months together with June, July and August when it rose by 1.5-2.75 % in opposition to the greenback.

VRR is to allow Overseas Portfolio Traders (FPIs) to spend money on debt markets in India. Funding by means of the route might be freed from the macro-prudential and different regulatory prescriptions relevant to FPI investments in debt markets, supplied FPIs voluntarily decide to retain a required minimal share of their investments in India.

Indian sovereign bonds are anticipated to be included within the international bond index in early 2022. The transfer will assist elevate funding urge for food considerably. It provides to the liquidity of papers.

“Secure cash is coming to native bonds if international traders are taking the VRR route,” mentioned Ajay Manglunia, managing director – debt capital market at JM Monetary. “Worldwide traders can freely make investments beneath this window, which gives higher flexibility than the conventional FPI debt funding route.”

“Some liquid papers are providing fairly enticing yields for traders,” he mentioned.

Some steadily traded company bonds embrace SBI Perpetual carrying coupon 7.72 per cent, Piramal Housing 6.75 per cent, Shriram Transport Finance 10.25 per cent, Mahindra and Mahindra 7.45 per cent, India Grid Belief 8.20 per cent. These papers rated triple-A, AA+ and AA are yielding within the vary of seven.40-10.65 %. Whereas bond costs rise, yields fall.

“With fairness markets peaking and uncertainty looming giant within the rate of interest trajectory, we are able to count on worldwide traders coming and exploring Indian debt securities,” mentioned Suvajit Ray, govt vice chairman at IIFL Securities. “Indian papers nonetheless provide comparatively greater returns to yield-hungry international traders with security.”

To make sure, overseas portfolio traders, nevertheless, offered a internet of $1.3 billion by means of regular debt funding routes through the yr.

Apart from sovereign securities, some public sector firm bonds that have been purchased into are Energy Finance Corp, Nationwide Freeway Authority of India, Rural Electrification and Indian Railways Fin Corp.

The minimal retention interval shall be three years in VRR investments, or as determined by RBI for every public sale.

VRR was included as a class of FPI debt funding final yr (2020) solely, when FPIs internet bought $3.4 billion.