New Delhi/Mumbai: India will allow foreign retail investors to buy local corporate bonds for the first time in its latest move to bolster capital inflows and support the shaky rupee.
However, the $1 billion cap on investment for overseas individuals in local corporate bonds, and the government’s expectation that it will take six to 18 months for the measure to have a significant impact, gave little cheer to the rupee.
“While the foreign retail investor limit increase is a positive at the margin ... it is not a game-changer,” said Kumar Rachapudi, fixed-income strategist at Barclays Capital in Singapore.
“$1 billion is not a big amount in this environment and anyways this will take a lot time to come in,” he said.
The rupee was off 0.86% on Tuesday despite the new measure.
The government gave detailed guidelines allowing qualified foreign investors (QFIs) to buy corporate debt. While the proposal had been announced in the budget in March, New Delhi had not yet provided details on the proposal, including the investment limit.
Thomas Mathew, head of the capital markets division in the finance ministry, said the flows from foreign investors will be more stable than existing institutional flows.
“We feel this will reduce volatility,” he told reporters after announcing the measures.
The $1 billion limit is in addition to the existing $20 billion limit for foreign institutional investors (FIIs) in corporate bonds.
Foreign individuals still cannot directly invest in Indian government bonds. India allowed foreign individuals direct access to its stock markets in January.
Separately, a senior official told Reuters that the RBI has proposed to the finance ministry to reduce the minimum lock-in period on debt investment for foreign institutional investors, in another move to attract investors.
The rupee, which fell to a lifetime low of 56.40 to the dollar last week, has been the worst performing major Asian currency since February.
Global risk aversion due to worries over the euro zone crisis, as well and India’s slowing growth and wide fiscal and current account deficits, have turned away investors.
The rupee was trading at 55.85 on Tuesday, but is still down about 12% in the last three months.
Foreign investors have bought a net of $177.7 million in debt and equity in May, far below the $7.2 bn in net inflows in February.