MUMBAI Foreign investors showed strong interest in Indian government debt at an auction on Monday, bidding at a sharply higher price than at the last auction two weeks ago, despite a weak start to the new year for Asian markets.
Foreign investors bid for 142.85 billion rupees ($2.15 billion) worth of domestic sovereign bonds available for purchase by them, compared with 73.96 billion rupees on offer at the auction, said three traders directly aware of the results.
The cut-off, effectively the price paid for the ability to buy the bonds, was 44.05 basis points, compared with 12.5 basis points at the previous auction on December 14.
The highest bid at the auction was 82 basis points.
The increase on Monday in bonds available for foreign investors to buy is part of India's broader plan to relax limits on outsiders, extending the limit to up to five percent of the outstanding amount by March 2018.
"Investors have a positive view on Indian economy," said Manish Wadhawan, managing director and head of fixed income at HSBC India.
"Second, among Asian peers, Indian debt is offering highest yields."
He added that even in a situation where a strong dollar is combined with a weaker yuan, the expectation is the rupee can outdo its rivals.
The rupee was one of the better performers in emerging markets in 2015, with foreigners showing confidence on the back of slowing inflation, a modest fiscal and current account deficit and government efforts to push through reforms.
Foreign investors bought a net $12.2 billion worth of Indian debt and shares in 2015 when the rupee fell by around 4.7 percent.
India also allowed foreign investors to buy an extra 35 billion rupees in state government bonds, the second time it has extended limits. The results of that offer are due to be published on Tuesday.
The state bonds were lapped up by a handful of foreign entities in October. [nL3N13F30P]
($1 = 66.5879 rupees)
(Reporting by Suvashree Dey Choudhury, Neha Dasgupta and Himank Sharma; Editing by Clara Ferreira Marques)
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