Limit up | Budget 2021

Budget 2020 | Finance Minister proposes a set of reforms to deepen bond market

As part of reforms for the financial markets, especially the bond market, the government has proposed increasing the investment limit for foreign portfolio investors (FPIs) in corporate bonds, opening certain government securities for non-resident investors and launching a new debt exchange traded fund (ETF) comprising primarily of government securities.

Finance Minister Nirmala Sitharaman on Saturday proposed that the limit for FPIs’ purchases of corporate bonds, currently capped at 9% of outstanding stock, would be increased to 15% of the outstanding stock.

Watch | Highlights of Union Budget 2020-21

‘Global bond indices’

“It may be argued that overall interest in Indian bonds is anyway muted for now and hence these expansions may amount to little in the near term,” Suyash Choudhary, head – Fixed Income, IDFC AMC, wrote in a post-Budget note.

“The other view to take could be that incremental ease of operation does bring in more flows (all other things being equal) and that especially the measure on government bonds could be in the direction of ultimate inclusion in global bond indices,” added Mr. Choudhary.

The Minister also proposed to float a new debt ETF consisting primarily of government securities. “This will give retail investors access to government securities as much as giving an attractive investment for pension funds and long-term investors,” she said.

The Budget also highlighted the success of the recent debt-based ETF floated by the government. The Bharat Bond ETF, introduced in December, raised more than ₹12,000 crore, against its issue size of ₹7,000 crore. Bharat Bond ETF invests in AAA rated bonds issued by public sector companies.

The Minister also proposed opening specified categories of government debt securities for non-resident investors.

Separately, the Budget proposes amending the relevant laws to extend commodity transaction tax on products introduced in the commodity derivatives markets late last year.

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Printable version | Apr 13, 2021 8:07:47 PM |

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