FIIs shift focus on government debt market, ask SEBI to hike investment limits in bonds

MUMBAI: In less than a week after the Securities and Exchange Board of India (SEBI) raised the limit for FII investment in government bonds, foreign institutional investors (FIIs) are now knocking on the doors of the markets regulator asking for a hike in their individual limits.

Yields in the government bond market have been on the rise in recent times. This, coupled with the rising rupee and lower borrowing rates in overseas markets, makes it lucrative for overseas investors to look at the gilt market.

According to a senior treasury manager with a multinational bank, SEBI has already been flooded with applications from FIIs, intending to invest in the gilt market on an incremental basis. There have been significant amounts of outflows due to the fact that SEBI has categorised all investments in liquid mutual funds as corporate debt investments, he added.

Bond traders are confident that once approvals from SEBI come through, investments by FIIs in government bonds will see a huge spurt. In fact, the rise in investments could be so sharp, that it could even bring down the yields from their current levels. FIIs who ended up bidding aggressively for the Reliance Power public offer will now find the surplus bid amounts finding their way back to them, in the post-allotment phase.