NEW DELHI Employees' Provident Fund Organisation (EPFO), India's state pension fund, will now be able to invest up to 65 percent of its holdings in sovereign bonds, up from 50 percent earlier, a labour ministry official said on Tuesday, in a move that will likely come as a relief to debt markets.
"It has already been effective. The day we got the sanction from the government, we communicated it to the EPFO," Labour Secretary Shankar Aggarwal told Reuters over the phone.
The move, widely expected by traders, would help the EPFO buy more state government bonds, including debt sold under a big bailout of regional electricity utilities.
The increased limit is also expected to benefit debt markets given concerns over how investors would absorb sovereign debt sales of as much as 9.5 trillion rupees ($142.81 billion) from April, a 9 percent increase from the current fiscal year ending March 31.
The sovereign debt sales include a planned increase to about 3.5 trillion rupees through sale of state development loans (SDLs) by regional governments, from 2.9 trillion rupees this financial year.
In addition, states and their utilities are set to sell around 1 trillion rupees in bonds tied to the so-called UDAY scheme, a plan under which regional governments would assume as much as 4.3 trillion rupees ($64.49 billion) in debt owed by their utilities.
"EPFOs are expected to put most of the enhanced limit in SDLs because of the higher spread that SDLs continue to give over and above the long-dated central government bonds," said Vijay Sharma, senior executive vice-president at primary dealer PNB Gilts Ltd.
The EPFO manages more than $100 billion of assets from some 80 million members.
($1 = 66.5203 rupees)
(Reporting by Neha Dasgupta; Editing by Rafael Nam and Biju Dwarakanath)
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