(FE)
The Reserve Bank of India (RBI) on Friday raised the debt investment limits for foreign portfolio investors (FPIs) across all segments, including central government securities (G-secs), allowing cumulative increase of over Rs 1 lakh crore through FY19. Though the hike in limit for G-secs — 0.5% each year to 5.5% of the outstanding stock in FY19 and 6% of the stock in FY20 — was a bit lower than market expectations, analysts felt the move would help bring down the yields further at least in the short term. The RBI’s decision could also ease pressure on local banks to support the government’s borrowing programme and free up liquidity to support an incipient investment cycle.
Currently, the FPI limit for general category G-sec investors stands at Rs 1.91 lakh crore; this has been raised to Rs 2.07 lakh crore for the first half of FY19 and further to Rs 2.23 lakh crore for H2FY19. For long-term FPI investors, the limit has been increased to Rs78,700 crore for the first half of FY19 and to Rs 92,300 crore for the second half of FY19. Aditi Nayar, principal economist, Icra, said though hike in the FPIs’ investment limit in G-secs would temporarily dampen bond yields further in the immediate term, “subsequently, the appetite of the FPIs for investing in Indian debt over the course of the year remains to be seen, given the expectation of continued monetary tightening by some global central banks”. There were speculations in the market that the FPI limit for G-secs might be increased gradually to 6-8% of the outstanding stock.
