EFFECT OF FPI IN DEBT ON YIELDS OF INDIAN GOVERNMENT SECURITIES

Abstract: Yields of government securities of various maturities give us the interest rate term structure This is used for pricing of financial instruments and making macroeconomic policies .Macroeconomic variables like output, inflation, fiscal deficit, call money rate and exchange rate have been shown to affect the gsec yields. This study focuses on effect of FPI in debt on yields. In India the FPI regime started in 2014.Since then the limits of debt investments by FPIs have been raised. An increase in FPI in gsec is expected to increase their prices and lower their yields. A regression analysis is conducted to study the effect of FPI in debt on yields of gsec of 1,5 and 10 years maturity. Findings show that an increase in FPI lowered gsec yields during the period of study April 2014 to March 2020 , though for some maturity the coefficient was not statistically significant.