A day after Fitch upgraded the outlook on India to stable from negative, finance minister P. Chidambaram on Thursday promised steps to revive investment including higher FDI caps in some sectors, fast-tracking of several large projects and an early resolution to coal and gas pricing. Confident the current account deficit could be financed without drawing down reserves, he ruled out a further hike in gold import duties and didn?t clarify on NRI bonds, saying no decision had been taken.
Late on Wednesday, the government upped the FII limit for gilts by $5 billion to $30 billion, with the additional quota targeted at long-term investors like pension and sovereign wealth funds.
The FM?s observations, however, failed to cheer the markets, with investors looking for concrete measures that would arrest the slide in the rupee and ensure the country?s current account deficit ? at 6.7% of GDP in Q3FY13 ? was reined in.
The Sensex ended the day at 18,827.16 points, down 1.12%, while the rupee closed Thursday?s session at 57.99 to the dollar, losing 20 paise over Wednesday?s close after trading well below the 58 mark for the better part of the day. On Tuesday, the rupee hit a lifetime low of 58.98 before the RBI intervened.
FIIs, meanwhile, continue to take money off the table, having pulled out $3.5 billion from the bond markets over the last month.
Addressing a press conference in the capital, the FM said the government would identify 30-40 projects that just needed a little push or one last clearance before they could take off. ?We will give these ? what we call a low-hanging fruits among the 250 private sector projects ? a push so that they can get off the ground. I am sure by July we will tell you which they are,? Chidambaram observed.
The FM added the government was looking at every sectoral cap, including defence, to see where FDI caps could be increased. ?We are in the last lap. The principle is very simple. Does the FDI cap serve any purpose today? If it does, we will keep that cap. If not, the cap should be either relaxed or removed.?
Fund managers point out that a weaker rupee is hurting. ?The weakness in the rupee would definitely affect debt investors, who are much more sensitive to currency movements. However, it is a global phenomenon that all long-dated debt is getting sold off; so, it is not just restricted to India,? Samir Arora of Helios Capital said.
The equity markets too have been weak over the past month; from 20,286 on May 17, the Sensex has lost 7%, giving up 614 points in the last three sessions. Adrian Mowat, chief Asian and Emerging Market Equity strategist, observed that in local currency terms, India is notably outperforming emerging markets since the end of April. ?The stress for India is expressed via the rupee and adjusting for rupee weakness the market is moving with EMs,? Mowat said. He added that fortunately for India, capital restrictions make the domestic monetary system less sensitive to capital flows. ?It is the only EM with lower 10-year bond yields than in the beginning of May,? Mowat said.
From levels of 53.82 to the dollar in early May, the rupee has weakened to 57.99 on Thursday, a loss of 7.2%. Other currencies like the Rand, the real and the rupiah have also depreciated as much. Chidambaram asserted there was no reason for panic. ?Countries with large current account deficits have taken a hit on their currencies. Rupee will find its level, we are concerned about volatility. Rupee will regain losses suffered in the last few days,? the FM said, adding the country’s bloated current account deficit in the current year, may remain at the same level as the last year.
Hitendra Dave, head, global markets, HSBC India said the move to increase the FFI cap for gilts was a good one since it addressed the perception that too much short-term proprietary money had come into the country. ?The key is to identify the right investors,? Dave said.
Meanwhile, Chidambaram, accompanied by Mayaram and chief economic advisor Raghuram Rajan, also met the Prime Minister Manmohan Singh regarding coal pricing and allocation, gas pricing, national skill development, and FDI in various sectors.
Chidambaram said the Sebi board will take a decision on KM Chandrasekhar committee report on rationalisation of foreign investment norms on June 25. In its report submitted on Wednesday, the Chandrasekhar committee put forward a number of recommendations including merging existing FIIs, Sub Accounts and QFIs to be merged into a new category called Foreign Portfolio Investor with an aggregate investment limit of up to 24%, among others. ?My preliminary view is that we are broadly in favour of the Chandrashekhar committee recommendations. We think the report is extremely positive and they deserve to be accepted,? the FM said.
MORE PROMISES TO KEEP
* Report on FDI sectoral caps from Arvind Mayaram panel next week. FM to discuss report with commerce minister
* Infrastructure projects held up for want of final clearances to be shortlisted from 250 projects and fast-tracked
* Sebi decision on KM Chandrasekhar report on foreign investment norms on June 25
* Resolution on coal and gas pricing related issues in the next few weeks
