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Seeing the enthusiasm of foreign portfolio investors (FPIs) in India’s corporate bond market, capital market regulator SEBI on Wednesday said it is willing to consider raising the upper limit they are currently grappling with. If this does happen — and the current investment ceiling of $51 billion is raised — FPIs will have more headroom to operate in the domestic corporate bond market.
Lots of enthusiasmSpeaking at a conference here organised by ratings agency Crisil, UK Sinha, Chairman, Securities and Exchange Board of India, said, “We have seen a lot of enthusiasm from FPIs in corporate bonds. Reductions in withholding tax have helped and over 60 per cent of the investment limit has been utilised. So, there will be an occasion where this limit can be enhanced.”
As of January 20, FPIs have exhausted 63.58 per cent of their $51-billion (₹2.44 lakh crore) limit of investments in Indian corporate debt. Additionally, Sinha noted that if foreign investors are willing to invest in the domestic debt market, this will help corporates raise money locally. “More participation in the corporate bonds market in India by foreigners also implies that companies won’t have to go abroad to raise debt financing. They will be able to raise funds here in rupee itself.”
He also said that over 95 per cent of bonds that are issued are placed privately. “So, the companies that are meant to be part of the ‘Make in India’ campaign are still not tapping the corporate debt market.”
However, he acknowledged that the Indian corporate bond market still has a long way to go before it can be fully developed. This is in terms of liquidity, enhanced bond-holder protection, better disclosures to debenture trustees and encouraging more and continued retail participation in the bond market even when the equity markets perform well.
Sinha said SEBI is trying to convince the government to give more powers to investors in the debt market, since banks and financial institutions are currently on a stronger footing in case of defaults in debt market than others.
“Our impression is that the government is considering our recommendations favourably.”
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