Fund houses, FIIs buy record debt in March

Domestic mutual funds (MFs) and foreign institutional investors (FIIs) invested their cash balance in debt market in March.

FII investments touched a three-year record at Rs 2,164 crore,while MFs pumped Rs 5,038 crore into the debt market.

The fund houses were net buyers in the domestic debt market in the last three months, with their net investment aggregating to Rs 9,690 crore. They sold securities worth Rs 3,597 crore in the domestic equity market.

MFs bought debt worth Rs 2,164 crore in January, Rs 2,489 crore in February and Rs 5,038 crore in March. They were net sellers in the equity market, offloading securities worth Rs 1,338 crore in January, Rs 274 crore in February and Rs 1,968 crore in March.

FIIs' net investment of Rs 2,164 crore or $488.10 million in March is the highest for any month since they started investing in the domestic debt market. Earlier in November and December 2004, FIIs had invested Rs 1,746.40 crore and Rs 1,707.40 crore, respectively, in the debt market.

In the last quarter of 2006-07, foreign investors were net buyers in the equity market for Rs 7,159 crore or $1,605 million and their net purchases in the debt market amounted to Rs 525 crore or $125 million.

Foreign investors turned net buyers in the debt market for Rs 2,699.30 crore ($607.40 million) in February and March, after massive selling of Rs 2,174 crore in January. The FII inflows in the debt market picked up from last April, while January saw the maximum outflows at $482.40 million.

Foreign investors were net buyers in the equity market for Rs 1403.30 crore in March. They have also been investing in short-term debt schemes such as treasury bills, certificate of deposits and commercial paper.

Mutual Funds have also increased their investment in the debt market mainly because of attractive yields. Debt securities are always exposed to risks of interest rates, inflation rates, exchange rates and the policies of the Reverse Bank of India.Coupon rate on corporate bonds and debentures went up from 8-8.5 per cent to 9.50-10 per cent.

The interest rate on the one-year treasury bills increased from 7.18 per cent early in the year to 7.80 per cent at the last auction price.