FPIs now wary of Indian government bonds; here is why

Overseas investors have turned wary of Indian government bonds after the rupee hit a 13-month high, leading to under-subscription of an auction of foreign portfolio investors’ (FPI) unutilised investment limit worth Rs 26,002 crore in G-sec by the National Stock Exchange (NSE) on Tuesday.

“The depreciation of rupee seems to be offsetting the attractive carry spread that overseas investors enjoy over similar tenor US Treasury yields,” said Ashutosh Khajuria, chief financial officer, Federal Bank.

NSE received 68 bids worth Rs 20,712 crore from FPI against the unutilised government bond investment limit worth Rs 26,002 crore offered for auction on Tuesday. The NSE accepted 68 bids worth Rs 20,712 crore, after setting the cutoff at 0.0001 bps. The debt auction quota gives overseas investors the right to invest in the debt up to the limit purchased.

Watch this Zee Business video here:

The rupee has depreciated approximately 4% against the dollar since the beginning of 2018 on adverse global and domestic factors including the rise in global crude oil prices, geopolitical tensions amid fears Federal Reserve may hike rates aggressively, dealers said.

Rupee remained the worst performer amongst major Asian currencies. Since the start of 2018, against the dollar, yuan rose 3.07%, Singapore dollar surged 0.95%, along with a 3.87% rise in yen whereas South Korean Won dropped 1.06%.

By Payal Shah, DNA Money