Long-term FPIs have utilised 25.57% of their quota of Rs 1.15 lakh crore.

Foreign portfolio investors (FPI) continue to chase yields in India comforted by the modest increase in government borrowings planned for 2020-21 and the Reserve Bank of India’s attempts to ensure adequate liquidity and lower interest rates.

They were buyers for five straight sessions to Tuesday, having snapped up close to $2 billion worth of bonds, Bloomberg data shows. Before that, between January and early February, FPIs had been somewhat cautious on Indian paper, selling debt worth $2 billion. Against the highs seen in mid-January at 6.667%, the benchmark yield on Wednesday closed at 6.476%.

Jayesh Mehta, country treasurer, Bank of America, observed that while globally yields have been trending down investors had been waiting for the budget and the monetary policy. “With January-March growth expected to be hit by coronavirus foreign investors have been chasing yields. Again, the government’s modest borrowing target for FY21 and the long term repos have been conducive for bonds,” Mehta explained.

From the highs seen in January, the yield on the 10-year US Treasury yield has come down by almost 26 basis points to 1.61%. Manish Wadhawan, managing partner, Serenity Macro Partners, pointed out a dovish monetary policy as well as fears of a global slowdown had worked to attract FPI inflows.”The chances of slower global growth may have resulted in higher allocations to emerging markets. US yields are also down and so are crude oil prices,” Wadhawan pointed out.

Brent Crude was trading around $55/barrel on Wednesday evening having fallen from the highs of over-$70/barrel seen in January, a big positive for India. RBI’s long term repo operations (LTRO) have also helped drive down bond yields.

Ajay Manglunia, MD and head-institutional fixed income, JM Financial, said FPIs would gain from the lower withholding tax till 2023. “The RBI’s introduction of the long-term repo operations as well as falling oil prices have pushed bond yields down,” Manglunia said.

General category FPIs have so far utilised 75.74% of their available limit in central government securities of Rs 2.46 lakh crore, CCIL data shows. Long-term FPIs have utilised 25.57% of their quota of Rs 1.15 lakh crore.