Skip to main content

RBI widens FPIs’ investment scope in local corporate debt

By
RBI widens FPIs’ investment scope in local corporate debt
Mint Street late on Tuesday raised the incentive for Corporate India to tap the bond market for its working capital needs, allowing foreign portfolio investors (FPIs) to invest a fifth of their total corpus in less than one-year residual debt papers sold by local companies.
The latest directive extends last week’s concessions that effectively enhanced shortterm GSec ownership by overseas funds. Although the policy maker has not raised benchmark rates yet in Asia’s third-biggest economy, the cost of funds at the short end of the yield curve has accelerated much faster than the long end, threatening to increase working capital expenses in an economy where the weighted average cost of capital trends higher than developed countries.
“In order to bring consistency across debt categories, it is stipulated that investments by an FPI in corporate bonds with residual maturity below one year shall not exceed, at any point in time, 20 per cent of the total investment of that FPI in corporate bonds,” the Reserve Bank of India (RBI) said late Tuesday.Before this change, FPIs were only permitted to invest in corporate bonds with minimum residual maturity of three years or above. They are now being allowed to invest in securities of less than one year, with up to 20 per cent of their corpus.
“More companies may tap the corporate bond market to meet their working capital requirement as we see overall demand to be improving in shorter maturity for carry trades,” said Ajay Manglunia, executive vice president at Edelweiss Financial Services. “FPIs are allowed to invest a decent portion of investments into less than one-year corporate bonds.  This (the latest move) will create additional demand for shorter maturity papers.
”RBI last week eased investment norms for overseas funds after weekly sovereign bond auctions partially failed to elicit investor interest. It allowed FPIs to invest in treasury bills and shorter maturity sovereign debt instruments in its latest move to ease foreign investment rules. RBI had liberalised FPI limits in government securities on Friday, allowing such investors to invest 20 per cent of their total deployment in GSecs. Tuesday’s notification brings corporate bonds on a par with government securities
.However, investors who have more than 20 per cent of their investments with less than one year residual maturity, as on May 2, 2018 (beginning of day), have to bring such share below 20 per cent within a period of six months.
The Economic Times, New Delhi, 02nd May 2018

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more