Rupee feeling the heat

Mumbai: Stating that the huge inflow of money from overseas investors is putting pressure on the Indian currency, a senior official at Sebi on Wednesday highlighted the need to manage such flows in a calibrated manner. 

While speaking at a FICCI seminar, Sebi whole-time director G. Mahalingam said that it was time for us to look for alternative ways of allowing these flows under a calibrated system. 

“A huge amount of foreign inflow into the country at a time when the currency in the country has been showing a substantial amount of appreciation is something which the regulator is going to be concerned about. We need to be very careful as far as allowing the foreign flows into the country are concerned. We can think of maybe different ways of allowing these flows in under a calibrated system,” he said. 

FPIs have pumped in a record Rs 1.28 lakh crore into the domestic debt market in 2017 till date while they have picked up equities worth Rs 42,847 crores during the same period though they remained net sellers of equities in August and September till date. 

The persistent inflow of foreign funds have led to a 5.5 per cent appreciation in rupee in the current calendar year putting pressure on exporters sparking concerns regarding their competitiveness. 

The Sebi official also raised concern regarding the issue of rupee-denominated corporate bonds popularly known as ‘masala bonds’ abroad arguing that such issuance are likely to add to India’s external liabilities. 

“When money flows into the country from foreign investments, we are attracting some risks and it is not currency risk alone. Masala bonds don’t hold any currency risks but at the same time, the external liability of the country goes up. This needs to be kept in mind,” Mr Mahalingam who joined Sebi from RBI last year added. 

Masala bonds worth $4.6 billion has been approved in FY17 out of which 55 per cent were for onward lending in domestic markets, 24 per cent for refinancing of the rupee loans and 14 per cent for general corporate purposes. 

Mr Mahalingam further informed that Sebi is in advanced stages of discussion with other regulators on the proposal to allow foreign portfolio investment in India’s commodity derivatives exchanges.