Consultations underway for 1HFY21 borrowings
Foreign portfolio investors are set to participate in a series of government bonds under the ‘fully accessible route’ (FAR) as planned by Indian authorities.
The selected securities will be available without any caps for foreign investors, said Radhika Rao, Senior Vice President and Economist in Group Research at Singapore bank DBS.
Toward this, all new issuances of government securities (GSecs) of liquid benchmarks of 5-Year, 10Y and 30Y tenors from FY21 will be considered as eligible securities.
Add to this, selected existing papers will also be placed under the window, according to Rao.
At this point, FPI limit in GSecs stands at 6% of outstanding, with a separate notification likely on the new effective threshold.
The plan to free up part of the GSec issuance to full FPI participation was announced in February’s Budget, marking a first step towards facilitating inclusion of Rupee bonds in global bond benchmarks.
Assuming 15% of Rs.7.8 trillion gross borrowings for FY21 is considered under the FAR, eligible securities will amount to Rs.1.2 trillion (~US$15 billion). This together with ~Rs.4.3 trillion of existing securities cumulatively make US$70 billion worth securities eligible.
If inclusion into global indices is considered, this might translate into a potential weight of 4-6% on the JPM GBI-EM Index and <1% on the Bloomberg Global aggregate bond index, said Rao on 31 Mar 2020.
Scope of incremental flows in the short-term hinge on the broader risk-environment, which at this juncture is tepid, with less than 60% of the existing limit used up.
As and when bonds are included in global benchmarks (also factoring in the lead time for due processes), the economy will able to draw in less volatile and long-term focused funds, widening the breadth of investors.
In the immediate term, Rupee 10Y bond yield has partly undone the sharp correction seen in wake of the RBI’s measures on 27 Mar 2020.
The Finance Ministry and the central bank are in midst of consultations on the 1HFY21 borrowing schedule and might be outlined this week, said Rao.
Press reports cited sources saying that planned borrowings for April might be trimmed or cancelled, likely to due to difficult market and economic conditions presently.
In the meantime, the RBI will conduct second TLTRO tranche of Rs.250 billion on 3 April. fiinews.com
