Foreign investors are showing strong interest in deploying capital on the Indian debt instruments as is evident from the recent auction of quotas to them.
Foreign investors bid for quotas to invest in Rs 259.05 billion ($4.34 billion) worth of debt, while
only Rs 236.61 billion worth of debt was on offer, media reports indicate.
Such an interest shown by foreign investors is remarkable given the worries about the macroeconomic environment in the country.v
According to sources, demand for Indian debt instruments was strong because the cost to obtain these quotas was negligible, while the purchase of these limits do not mean foreign institutional investors (FIIs) are under obligation to fill them.
The recent depreciation of rupee against the dollar, high current account deficit, liquidity tightening measures taken by the Reserve Bank of India to stabilise exchange rate are some of the risk factors in the economy.
The recent measures indicate that the RBI’s monetary policy stance is not accommodative anymore. So although FIIs have acquired the limits in auction, they may not utilise their limits, some analysts feel.
Last month, foreigners bought Rs 391.71 bn of debt limits, but had only used Rs 46.2 bn by July 19, National Securities Depository Limited data showed.
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