India eases rules for foreign investment in government bonds

India eases rules for foreign investment in government bonds

MUMBAI - India's market regulator has allowed foreign investors to reinvest in government bonds the same day, according to a emailed circular seen by Reuters, hoping to sustain outside interest in the country's debt market.

India limits the amount of government bonds available to foreign investors, and some 90 per cent of that allocation was filled in September last year, following the election of Prime Minister Narendra Modi's government earlier in 2014.

Levels of foreign investment have since risen, with the Securities and Exchange Board of India (SEBI) auctioning the remaining portion at frequent intervals.

However, foreign investors who bought government bonds before September had been unable to switch those bonds to different tenors - once debt was sold, they could not buy back in without going through the lengthy auction process.

"This will revive foreign investor interest in government bonds and help investors to switch to longer end bonds from shorter end, given a benign interest rate outlook in India," said Ajay Manglunia, head of fixed income markets at Edelweiss Securities.

Allowing foreign investors to reinvest in sovereign paper could also indicate that the government has no intention of relaxing overall limits on their investment anytime soon, Manglunia added.

SEBI, in an email sent late on Wednesday to the custodian banks of foreign investors and seen by Reuters, said the facility to buy and sell government bonds the same day would be applicable on the entire $30 billion ceiling on government debt purchases by foreign investors.

"Upon sale or redemption or maturity of government securities the FPIs (foreign portfolio investors) shall be permitted to buy government securities on the same day," SEBI said in the email, confirmed by four dealers.

Foreign investors have been aggressively buying Indian debt since Modi came to power in May, promising a quicker and stronger economic recovery.

The benchmark 10-year bond yield has fallen by 104 basis points since May last year driven by foreign buying.

Foreign investors have poured in $7.9 billion so far this year into Indian debt, on top of $26.2 billion in 2014.

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