Mumbai: Overseas investors just can’t get enough of Indian bonds.
Attracted by one of the highest yields in Asia, foreigners bid for Rs10,442 crore ($1.6 billion) of corporate debt quotas, exceeding the Rs7,418 crore target and taking inflows to near the overall cap of $51 billion. On Tuesday, the government got bids for 1.3 times the quotas being offered, exhausting 99.63% of the cap on sovereign debt.
The success of the quota auctions means global funds don’t have much room to add to their purchases, undermining ongoing borrowing plans of companies. The nation’s caps on foreign ownership of its debt have been a sore point with fund managers chasing returns in one of the world’s fastest-growing economy.
“Companies should be able to access capital at lower rates, and given the size and liquidity of the local corporate market, without controls," said Kenneth Akintewe, senior manager at Aberdeen Asset Management Plc in Singapore. “A good starting point would be to remove the limits on corporate bonds."
Wednesday’s sale was the first for corporate debt after the market regulator in November 2012 allowed global funds to invest without seeking approval until overall holdings touched 90% of the cap, a limit that was raised to 95% last week.
Foreigners own about 7.5% of India’s government and corporate debt, compared with 30% in Indonesia and Malaysia, according to Aberdeen Asset. Even China has intensified efforts to draw overseas investors to its onshore debt market, kick-starting a trading link with Hong Kong in early July.
Indian policymakers have been reluctant to ease the curbs to shield markets against capital outflows as global central banks prepare to unwind stimulus.
“I look at it as a wasted opportunity—investors want to invest more, but India is turning them away," said Jan Dehn, London-based head of research at Ashmore Group Plc, which has $58 billion in assets. “India could have lower yields, which will benefit the government and corporates, if they let foreigners become more involved in the bond market."
Even so, the relatively higher yields offered by Indian debt is a magnet for offshore funds. The top-rated 10-year local company notes pay 7.5%, compared with 4.83% in China. The nation’s 10-year sovereign bond yields 6.45%, the highest among major Asian markets after Indonesia.
Foreigners have raised holdings of local government and corporate bonds by Rs16,600 crore rupees in July—a sixth month of inflows—lifting total purchases in 2017 to 1.33 trillion rupees, data compiled by Bloomberg show.
“There’s big demand from foreigners for emerging-market bonds because the outlook for fixed-income in developed markets is becoming less rosy," Ashmore’s Dehn said.