FII cap in bond mart may rise

Securities and Exchange Board of India (Sebi) Chairman M Damodaran today said the limit on investment by foreign institutional investors (FIIs) in the bond market would go up as the markets grow.

"There is a limit on investment (by FIIs in the bond market). It may move away as we go forward," Damodaran said addressing the Fortune Global Forum.

"This (raising limits on FII investment) will happen over time. As markets grow, this will happen," he said.

Damodaran, however, did not give a timeframe for raising the limit. Currently, FII investments in the bond market are capped at $4 billion.

The Sebi chief also said the market regulator would put in place regulations on securitisation by the end of the current financial year to March.

He said the regulator had already circulated a draft regulation on securitisation.

On the corporate bond markets, Damodaran said the Sebi had just put in place a trading platform and volumes would improve in the next one year.

He said the Sebi's recent steps to regulate participatory notes (P-notes) were an attempt to make the Indian stock markets more transparent.

He said the regulator did not act in haste on P-notes as it had announced its intention to regulate unregistered foreign investors in February 2004.

"We had put people on notice three years ago," he said.

He said FII sub-accounts were facilitating investment in a non-transparent way.

Last week, the Sebi had banned the issue of derivatives-based P-notes and put curbs on their fresh issuance.