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UPDATE 1-Moderate demand at Indian debt quota sale for foreign investors
June 20, 2013 / 12:37 PM / 4 years ago

UPDATE 1-Moderate demand at Indian debt quota sale for foreign investors

* Foreign investors bid 391.71 bln rupees for Indian govt
debt quotas
    * Bids below total 420.22 bln rupees debt limit on offer
    * Cut-off negligible given large size of auction

    By Archana Narayanan and Suvashree Dey Choudhury
    MUMBAI, June 20 (Reuters) - India saw moderate interest from
foreign investors in an auction for government bond quotas on
Thursday after a slump in the rupee to a record low has sparked
a sell-off in domestic debt markets.
    India attracted 391.71 billion rupees ($6.67 billion) worth
of orders for quotas that allow foreign investors to buy
government debt, lower than the 420.22 billion rupees on offer,
according to four dealers who participated in the auction but
who declined to be identified.
    However, the cost to obtain these quotas was negligible as
it marked India's biggest auction since February, and came on a
day when domestic bonds slumped after the Federal Reserve
signalled a rollback of its quantitative easing.
    Despite selling the majority of its debt quotas, the auction
is unlikely to significantly reduce concerns after foreign
institutional investors (FIIs) sold a net of around $4.7 billion
over the 19 sessions through Tuesday.
    The debt limits do not necessarily mean foreign investors
will actually buy government bonds, as they are just quotas
giving them the right to do so within a certain period of time.
     "The size of the bond limits on sale is large, amid weak
market conditions, so the cut-off was muted," said Arvind Chari,
fixed income fund manager at Quantum Asset Management.
    Bond yields have surged this month, reflecting a worrisome
cycle: a falling rupee spurs more foreign investors to sell debt
to avoid seeing their returns eroded, which in turn weakens the
rupee further and sparks more bond selling.     
    India is trying to regain the confidence of foreign
investors. Market regulators have recommended further easing
registration, and raised investment limits in government debt by
$5 billion to $30 billion, although only for long-term
    The falling rupee was also a factor in leading the Reserve
Bank of India to keep interest rates unchanged on Monday,
reducing the appeal of Indian government debt. 
    Marginal respite came from Fitch Ratings which returned
India's sovereign outlook back to "stable" from "negative" a
year after its downgrade, in a surprise endorsement of the
government's fiscal efforts. 
 ($1 = 58.7400 Indian rupees)

 (Editing by Ron Popeski)

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