FIIs pare exposure in debt as rupee weakens

A weakening of the rupee has resulted in foreign institutional investors (FIIs) exiting their debt portfolios to mitigate losses. Earlier this year, FIIs were aggressively buying Indian debt paper, hoping for a rate cut by the Reserve Bank of India (RBI) in 2015.

Since the start of this month, the rupee has been weakening, though it ended stronger on Thursday than on Wednesday. Experts believe it could touch 64 to the dollar in the near term. It closed on Thursday at 63.11, compared with Wednesday’s 63.62, following the US Federal Reserve’s equity market-boosting statement Stock Market Trading Tips

“FIIs bought Indian bonds at a certain price when the rupee was trading around 60 a dollar. Though they had made money due to expectation of rate cuts by the central bank, they’ve lost more due to depreciation of the rupee against the dollar,” said a senior treasury official of a foreign bank. “Concerns of a rate hike in the US sooner than expected is also a reason for FIIs selling Indian bonds.”

At the end of a two-day policy meet on Wednesday, the US Fed said it would remain “patient” in its approach to raising interest rates. This boosted global markets Financial Astrology Trading Tips

“FIIs had sold more than Rs 800 crore on Monday in corporate bonds. Probably those FIIs which had unhedged exposure are selling off. The proportion of the latter is not much, so we might not, going forward, see this kind of sell-off,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities. He added such a sell-off by FIIs in corporate bonds had not happened in a long while.

FIIs in the recent past had been buying corporate bonds because the legal limit for buying government bonds was near-full. RBI had in July raised the FIIs’ sub-limit in government bonds by $5 billion, after the existing $20-billion limit was almost exhausted. However, the overall limit for FII investment in bonds was kept unchanged at $30 billion. FIIs’ investment cap in corporate debt is $51 billion. On Wednesday, FIIs were net sellers in government bonds worth Rs 679 crore Commodity Trading Tips


Some believe these FIIs might come back to Indian bonds in 2015. “The medium-term picture around the economy is looking fine. These investors might be looking to come back in January,” said another senior official of a foreign bank.

Though RBI kept the repo rate unchanged at eight per cent earlier this month, the Consumer Price Index (CPI)-based inflation target was revised to six per cent by March 2015. Earlier, the target was eight per cent by January 2015. CPI-based inflation rose 4.38 per cent year-on-year in November, the slowest pace since January 2012 Jackpot Trading Tips
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