Overseas investors have pulled out over Rs 17,000 crore (nearly $3 billion) from the Indian debt market in just a fortnight due to weakness in the rupee.

During June 3-14, Foreign Institutional Investors (FIIs) were gross buyers of debt securities worth Rs 4,092 crore, while they sold bonds amounting to Rs 21,213 crore translating into a net outflow of Rs 17,121 crore ($2.98 billion), as per data available with market regulator SEBI.

Market experts attributed the huge sell-off to weakness in Indian currency, which is instrumental in FIIs exiting the debt market as the cost of hedging a volatile rupee is rising and in turn hurting the yield differential the FIIs are working with.

Of late, the Indian currency has been consistently hitting record lows and it slumped to a life-time low of 58.98 in the intra-day trade against the US dollar on June 11. On Friday, the domestic unit had closed at 57.51 against the US dollar. Indian currency had lost around two per cent so far this month.

Debt market investments

FIIs have been aggressive buyers of bonds since the beginning of 2013 on account of higher yields offered by the Government and corporate debt with a net investment of Rs 6,926 crore ($1.5 billion) so far this year.

Besides, steps taken by the Government to ease the FII investment rules by doing away with sub-limits and reducing the withholding tax on debt investments have also helped the segment.

Overseas investors’ net investments had reached a two-year high during 2012, attracting a net inflow of around Rs 35,000 crore in the Indian debt market. Moreover, FIIs have withdrawn Rs 1,458 crore ($244 million) from the equity market during the fortnight.

With this, the total foreign investment in the country’s equity market has reached Rs 81,747 crore ($15.10 billion) so far this year.

As on June 14, the number of registered FIIs in the country stood at 1,759 and the total number of sub-accounts at 6,409 during the same period.

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