FPI Debt Limits - To Be Or Not To Be
There are many subplots in the ongoing Indian government bond market soap opera. One, which also has a bearing on our currency markets, is the debate on whether Foreign Portfolio Investment (FPI) debt limits should now be increased to bridge a potential supply/ demand mismatch for bonds. This is a touchy topic that excites passionate, ideological debates. While this is an immediate issue, it is worth stepping back and reviewing the overall context of portfolio investments. What is the current mix of portfolio investments in equity and debt markets? What has been the return to FPI investors under each asset class? How volatile have the flows been, and how can we make them more stable? Given all this, what could be the approach towards FPI debt limits going ahead? Taking stock of FPI investments Equity As of January end, FPI equity assets under custody (AUC) stood at INR 29.2T ($448B). This constitutes over 20% of NSE total market capitalization, 40% of NSE NIFTY tot