Market Feels Political Uncertainty May Hamper Full Float Move

Leading capital market players and institutional investors, both foreign and domestic, have expressed concern over the effect that the political uncertainty at the Centre will have on the implementation of the report on capital accounts convertibility (CAC). While the recommendations of the committee have been lauded, by and large, it has been felt that the implementation of the report will face political opposition.

While two respondents contacted by Business Standard R H Patil and M G Damani were confident that the government would accept the report, others like Richard Overton, chief executive of ITC Classic Threadneedle and Vijay Advani, CEO of Templeton AMC expressed scepticism.

 

P Chandrashekhar, vice chairman of the Association of Merchant Bankers of India, was also sceptical on the issue.

Damani said: There will be stiff political opposition initially for the clearance of the report. However, it will be accepted and implemented as rupee convertibility is inevitable. Replying to a question on the feasibility of the implementation of the report, respondents remained sceptic. While a section felt it was possible to implement the report, others were not sure about the feasibility, citing political repercussions.

When queried on whether the government would set up a consolidated sinking fund using the disinvestment proceeds and profits of the RBI, a section of the FIIs were uncertain of its feasibility. Senior market players were also non-committal and NSE managing director R H Patil stated that this form of fund was generally created by corporates and not by governments in any part of the world.

Interestingly, virtually all the participants which this newspaper spoke to were of the view that Parliament should not be involved in mandating an inflation rate when one was looking at keeping the inflation rate within a specific range. Senior market players, particularly stock exchange (SE) chiefs M G Damani and R H Patil said the recommendations of the Tarapore committee were in line with their expectations. Further both SE chiefs welcomed the clear signal for unprecedented autonomy and power to the RBI.

A section of the FIIs were of the view that even when convertibility finally came through, it would not mean that there would be an inflow of hot money.