Yield-hungry overseas investors are flocking back to domestic securities with their latest destination being corporate bonds.
This renewed interest has been triggered by additional investment space available now to buy domestic debt securities. With the RBI removing the corporate bond investment limit from masala bonds, or rupee-denominated debt securities sold abroad, in September, additional space for investment has been created.
In the past five trading sessions, the likes of Credit Suisse, Standard Chartered Bank, DBS Bank have collectively invested about `9,500 crore in top-rated Indian companies including HDFC, Reliance Industries and NHAI amid available additional investment limits, market sources familiar with the matter told ET.
Emails sent to the three investors remained unanswered till the time of going to press.
“There is strong interest in the corporate bond market coming from overseas investors,” said Shailendra Jhingan, CEO, ICICI Securities Primary Dealers.
“The availability of additional space is now met with pent-up demand for top-rated Indian papers.The attractive carry along with a view of stable currency on the back of strong macros make India a compelling story for foreign investors,” he said.
Between September 29 and October 10, overseas investors have bought Rs 9,454 crore worth of corporate bonds, show data from National Securities Depository (NSDL).
Total investment limit is now at Rs 2,27,322 crore, of which nearly 95 per cent has been used up. The exchanges will auction the residual 5 per cent limit.
“Indian real interest rates are still high, compared to other emerging markets, a key attraction for investors, who look convinced about the country’s long-term growth trajectory,” he said.
The buoyancy reflects India’s attractiveness among global investors allaying growth concerns.”Fund inflow into debt securities will continue as long as investment limit is available,” said Sandeep Bagla, associate director, Trust Capital. “Given a stable rupee coupled with relatively better macro fundamentals, India continues to offer attractive rates to yield-hungry global investors.”
Although the rupee has showed some signs of weakness in the past two weeks, it has been fairly stable with no sharp spikes. In the past two weeks, the local unit has been hovering in the narrow range of 65.25 and 65.50 to a dollar “Increased FPI buying in corporate bonds have narrowed the yield spread marginally since the beginning of the month,” said Ajay Manglunia, executive vice-president at Edelweiss Finance. “The additional space has triggered interest among overseas borrowers, who were earlier could not buy as the investment limit got over.”
The spread or gap between the benchmark sovereign and top-rated corporate bond yields has contracted by about 5-10 basis points in the past six trading sessions. While corporate bond yields nearly remain static on the back of increased buying interest, government bond yields have shot up about 11 basis points during the period.