REITs invest more money in Indian bonds than in stocks

This year marked the ‘coming of age’ for the normal Indian saver, with Nifty’s move beyond Mount 18K dominating the waves and segment inches. Yet what hardly has been seen is that foreign funds, which hold the bulk of Indian stock resources, have quietly bought a larger amount of local debt than stocks over the course of a year. year that broke all records – of IPOs, unicorn valuations or SIPs. Foreign funds bought bonds worth around $ 4.5 billion under the Voluntary Retention Route (VRR). Conversely, their net stock purchases amounted to $ 3.9 billion this year, according to NSDL data.

“The wait for India to be included in the global bond index has aroused the interest of global investors, as such an event will have a ripple effect of increasing demand for Indian papers,” A Balasubramaniam said, CEO of Aditya Birla Mutual Fund. “The relative strength of the rupee has also helped. Any appreciation of the rupee helps to increase earnings for global investors. “

Indian bond yields have been stable. Globally, bonds would have generated negative returns of 5% in 2021.

Although the rupee is one of the worst performing Asian currencies this year, the local unit gained against the dollar in certain months, notably in June, July and August, where it rose 1.5 to 2.75% against the dollar.

“Stable money gets to local bonds if global investors go the VRR route,” said Ajay Manglunia, managing director of debt capital markets at JM Financial. “International investors can invest freely under this window, which offers greater flexibility than the normal debt REIT investment route.”

The VRR is intended to enable foreign portfolio investors (REITs) to invest in the debt markets in India. Investments through this route will be exempt from macroprudential and other regulatory requirements applicable to investments by REITs in debt markets, provided the REITs voluntarily undertake to maintain a required minimum percentage of their investments in India.
Indian sovereign bonds are expected to be included in the global bond index in early 2022. The move will help significantly increase appetite for investment. It adds to the liquidity of the papers.

“Some liquid papers offer fairly attractive returns for investors,” he said.

Some frequently traded corporate bonds include SBI Perpetual bearing a 7.72% coupon, Piramal Housing 6.75%, Shriram Transport Finance 10.25%, Mahindra and Mahindra 7.45%, India Grid Trust 8.20%. Papers rated triple A, AA + and AA have a yield of between 7.40 and 10.65%. As bond prices rise, yields fall.

“With the stock market peaking and the uncertainty looming over the path of interest rates, we can expect international investors to come and explore Indian debt securities,” said Suvajit Ray, vice president. Executive of IIFL Securities. “Indian papers still offer relatively higher returns to global investors hungry for safe returns.” True, foreign portfolio investors sold a net amount of $ 1.3 billion through normal debt investment channels during the year.

In addition to sovereign securities, some of the public sector corporate bonds that have been purchased are Power Finance Corp, National Highway Authority of India, Rural Electrification, and Indian Railways Fin Corp. The minimum retention period will be three years in VRR investments, or as decided by RBI for each auction.

VRR was included as an investment category in REIT debt last year (2020) only, when REITs bought $ 3.4 billion net.

Summary of the news:

  • REITs invest more money in Indian bonds than in stocks
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