Serenity ruled the rupee-dollar market yesterday but bank dealers said this weeks share price convulsions could cause a stutter in foreign capital inflows later.
Rising import demand, as economic growth re-gathers momentum in the coming months could also dent the rupee, they said. The inter-bank foreign exchange market was jolted in the first half hour of trading on Tuesday, when the rupee weakened five paise to touch a low of 36.32, but quickly regained its poise and held around 36.26/27 in afternoon trade yesterday.
The RBI had issued a statement on Tuesday evening saying the rupee should remain stable and it would act swiftly if markets became disorderly. A 6.5 percent recovery on the National Stock Exchange top-50-index, virtually wiping out Tuesdays crash, reassured dealers that portfolio investment inflows will keep on coming. The worry yesterday was that foreign funds, facing redemption pressure in other markets, will sell off to raise funds, said a dealer at a European bank.
That has not happened, and I dont expect much pressure on spot rupee in the next few months, he said.
But there are widespread expectations that domestic companies will be raising less money abroad because the differential between local and overseas interest rates has narrowed.
Also the country is likely to get less advantageous terms because of the vulnerability its markets have shown this week.
Some of the scheduled overseas equity issues from public sector companies could be delayed following Tuesdays stock market crisis, bankers said.
The list includes Mahanagar Telephone Nigam Ltd (MTNL), and the Gas Authority of India. External commercial borrowings (ECBs) are expected to slow down because of widening spreads on offshore debt in the wake of the Asian currency and stock market crisis, bankers said.
Some firms have abandoned proposed offshore debt issues as falling domestic interest rates are making domestic debt issues more attractive, bankers said. Reserve Bank of India governor C Rangarajan said, he expected foreign capital inflows in 1997/98 (April/March) to match or slightly beat last years $9.5 billion.
But the Centre for Monitoring the India Economy forecast earlier this month that inflows would be round $12.2 billion this year, and most of the increase was put down to an explosion of ECBs. The CMIE expected ECBs to rise to $3.5 billion this year from $227 million in 1996/97. Many dealers said the insulated Indian markets would increasingly get sucked into global events as India gradually liberalised its markets and took steps towards the goal of making the rupee convertible on the capital account.
Although the turmoil in the global markets may not have any immediate impact on us, one should be cautious as inflows may get postponed, Bank of America told its clients yesterday. If dollar demand from the Indian Oil Corporation and other sources also coincide with this, we may see a gradual weakening of the rupee, the bank said.
Corporates are still advised to hedge part of their payables, Bank of America said. Many Indian firms left their foreign exchange exposures unhedged as the rupee has stayed relatively stable for nearly a year, aside from a short-lived move lower in August.(Reuters)