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The government has increased foreign investor limit in government securities (G-sec) by $5 billion (Rs 29,137 crore).
The enhanced limit, however, will be available to only those foreign institutional investors (FIIs) that are registered with the Securities and Exchange Board of India (Sebi) under sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks, Sebi said in a circular.
The market regulator said this unutilised limit will be made immediately available for investment "on tap".
The amount will be put on auction on June 20.
Sebi added that for FIIs that have exhausted their reinvestment limits, a special window of up to $250 million per FII shall be available during the next auction as a one-time measure.
However, this will be subject to the condition that the aggregate investment in government debt by all FIIs is limited to $25 billion.
The move comes at a time when FIIs have been withdrawing from Indian debt heavily. The withdrawal by FIIs resulted in weakening of the rupee against the dollar in recent times. It also resulted in government bond yields moving up.
According to dealers, FIIs were pulling out of Indian debt because they have captured the arbitrage and decided to move out. The Federal Reserve may soon decide to withdraw its bond-buying programme known as quantitative easing or QE3, as the US economy is showing signs of improvement. If that happens, then the spread between the US treasuries and domestic markets will not be very attractive for them, said dealers.
The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 7.30 per cent on Wednesday. It had closed at the same level yesterday as well.
Yesterday, the rupee hit all-time intra-day low of 58.99 against the greenback, which triggered the Reserve Bank of India (RBI) to ask public sector banks to sell dollars. According to dealers, RBI intervened today, too, which helped the rupee gain strength. Late in the afternoon, rating agency Fitch revised the outlook for the Indian economy from negative to stable, after which the rupee appreciated further.
In addition, anticipation that the government will announce action tomorrow to boost inflows also helped the currency gain, which has weakened 7.4 per cent since the beginning of May.
The rupee closed at 57.79 per dollar on Wednesday, one per cent higher than its previous close and two per cent more than its all-time low (intra-day), which it reached yesterday.
On Wednesday, FIIs pulled out $393.73 million from the domestic debt market, compared with $542.79 million on Tuesday, according to data from Sebi.
