Hike in FII investment limits in corporate debt will aid growth of bond markets, ICRA says

  • | Wednesday | 26th July, 2017

"As a result, the FII limits as percentage of corporate bonds outstanding have effectively reduced to 9.8% from 18.0%," ratings agency ICRA said. "With the increase in debt utilisation limits, the scope for further FII inflows into G-Secs and corporate debt remains limited to $5.4 billion and $4.3 billion for the balance of 2017-18," it said. "Notwithstanding the robust FII debt inflows in Q1, unless the FII investment limits are increased, the current high utilisation levels of these limits and possibility of profit booking opportunities may restrict the net annual FII debt flows to within our earlier estimates of $5-10 billion for 2017-18," ICRA stated. "Maintaining the limit at the current level may not only impact FII inflows into the debt segment but may also reduce the volume of fresh corporate bond issuances to FIIs in the near-term," ICRA said. "While a number of steps have already been taken by the government and the regulators to deepen the corporate bond markets, a hike in the FII investment limit in corporate bonds would further aid the cause," said Karthik Srinivasan, group head, financial sector ratings, ICRA.As of July 24, 2017, the utilisation of FII limits in corporate bonds increased further to 97%, reflecting a need for an immediate increase in the limits, the agency said.

COIMBATORE: At $10.11 billion during the first quarter (Q1) of 2017-18, inflows from foreign institutional investors (FIIs) into the debt market were the highest in any quarter during the last decade. The inflows were strong in G-Secs (government securities) and corporate bonds even as the FIIs interest in state development loans (SDLs) remained subdued.However, FII 's investment limits in corporate bonds have remained unchanged at Rs 2.44 lakh crore since June 2013, while the volume of corporate bonds outstanding has increased at a 22% CAGR (compounded annual growth rate) during this period from Rs 13.5 lakh crore as on June 30, 2013 to Rs. 24.81 lakh crore as on June 30, 2017."As a result, the FII limits as percentage of corporate bonds outstanding have effectively reduced to 9.8% from 18.0%," ratings agency ICRA said. "While a number of steps have already been taken by the government and the regulators to deepen the corporate bond markets, a hike in the FII investment limit in corporate bonds would further aid the cause," said Karthik Srinivasan, group head, financial sector ratings, ICRA.As of July 24, 2017, the utilisation of FII limits in corporate bonds increased further to 97%, reflecting a need for an immediate increase in the limits, the agency said."Maintaining the limit at the current level may not only impact FII inflows into the debt segment but may also reduce the volume of fresh corporate bond issuances to FIIs in the near-term," ICRA said."With the increase in debt utilisation limits, the scope for further FII inflows into G-Secs and corporate debt remains limited to $5.4 billion and $4.3 billion for the balance of 2017-18," it said."Notwithstanding the robust FII debt inflows in Q1, unless the FII investment limits are increased, the current high utilisation levels of these limits and possibility of profit booking opportunities may restrict the net annual FII debt flows to within our earlier estimates of $5-10 billion for 2017-18," ICRA stated.

If You Like This Story, Support NYOOOZ

NYOOOZ SUPPORTER

NYOOOZ FRIEND

Your support to NYOOOZ will help us to continue create and publish news for and from smaller cities, which also need equal voice as much as citizens living in bigger cities have through mainstream media organizations.


Stay updated with all the Chennai Latest News headlines here. For more exclusive & live news updates from all around India, stay connected with NYOOOZ.

Related Articles