Although the upper limit could have been set taking government bonds into account, analysts expect a substantial amount to be invested in corporate bonds.
CPPIB, CDPQ, Teachers’, Templeton, Capital Investment, Schoders, GIC OMERS and People’s Bank of China are among the investors likely to invest.
Individual investors did not respond to ET’s questions. The CDPQ and Ontario declined to comment.
“The additional investment limit will likely be exhausted in the first seven to eight months, as it would mainly be bilateral agreements structured in the form of a bond,” said Jayesh Mehta, Chief National Treasurer of Bank of America.
“These bond trades don’t vary much based on macro scenarios, as investors look for specific requirements.”
“Investors set terms with issuers bilaterally amidst other commercial considerations,” he said.
A global parent company can also invest in local subsidiaries using the VRR route.
“The increase in the VRR limit by the RBI will attract global investors betting on local corporate bonds and g-secs,” said Sriram Krishnan, Managing Director of Deutsche Bank India. “As the economy rebounds, companies are likely to have better creditworthiness, a major boost for foreign investors who view the rupee as a relatively stable currency.”
The VRR offers greater operational flexibility against the commitment of a minimum holding period and is considered to mitigate the risk of rupee volatility.
“India offers better risk-adjusted returns to global investors given the strong macroeconomic indicators which are expected to improve further over the next few years,” said Hemant Mishr, Founder and CIO of SCUBECapital, Singapore. “In addition to additional capital, it will attract patient capital, i.e. stable long-term investors such as sovereign or endowment funds seeking to generate higher returns than in their home countries.
“With rising US Treasury yields, they now run the risk of facing market value losses,” he said.
The benchmark gave 6.70% against 2% in the American gauge.
As of February 10, REITs were using 1.33% to 34.06% of their total limits in central and state government debt securities. They have exhausted around a fifth of the corporate bond limits set at Rs 6.07 lakh crore, data from custodian NSDL shows.
VRR was recommended in October 2018 to bring long-term funds into debt assets. This decision was to protect the rupee against a rising dollar.
RBI on Thursday increased the limit for REITs to invest in the local debt market under the Voluntary Retention Track (VRR) from Rs 1 lakh crore to Rs 2.5 lakh crore, effective April 1 from This year.