Rating agency India Ratings and Research says that new framework on foreign portfolio investment (FPI) limits in Government bonds will deepen the market and also reduce 'hot money' outflow concerns in case of resurgence of global volatility, according to a report.
“The guidelines on foreign portfolio investment (FPI) limits in G-secs will help broaden participation across the yield curve, help investors plan allocations systematically and alleviate concerns over 'hot money' outflows in the event of global volatility resurgence,” says the rating agency
In its monetary policy review on September 29, RBI announced an increase in FPI investment limit in Government bonds in phases to 5 per cent of the outstanding stock by March 2018.
RBI said the existing requirement of investments being made in G-sec, including state development loans with a minimum residual maturity of three years will continue.
limits for the residual period of the current financial year would be increased in two tranches from October 12, 2015 and January 1, 2016.
Each tranche would entail an increase in limits by Rs13,000 crore. The report said once the Rs13,000 crore ($2 billion) FPI limit opens today, flows will spread across the yield curve though short-end curve outperformed in the past fortnight.