The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top SEBI official said.
The rupee-denominated bonds, popularly known as masala bonds, are likely to add to the nation’s external liabilities even if they don’t hold any risks to currency movement, a top Sebi official said on Wednesday.
“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,” Sebi whole- time member G Mahalingam said here.
“And a huge amount of foreign inflows at a time when the currency has been substantially appreciating is something the regulators must be concerned about,” he said, addressing a capital markets summit organised by industry lobby Ficci.
The masala bonds are debt instruments through which designated domestic entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk. In fact, the World Bank arm IFC thus far has raised the largest amount through this instrument.
According to some estimates, the masala bonds accounted for 39 per cent of the total ECBs of USD 7.39 billion reported by the Reserve Bank in the fourth quarter of FY17, while the approvals for the same rose to USD 2.9 billion over USD 0.8 billion in the third quarter.
For the full fiscal of 2017, the aggregate stood at USD 4.6 billion, according to a recent Icra data.
Of the total masala bonds of USD 4.59 billion approved during FY17, 55 per cent were for onward lending in domestic markets, 24 per cent for refinancing of the rupee loans and 14 per cent were for general corporate purposes.
Mahalingam said the Sebi is in advanced stage of talks with other regulators on allowing participation of FPIs in commodity derivatives market.
On the mutual fund industry, he said the sector should try to bring down its total expense ratio which is far higher than the comfort level. “It is time for mutual funds to shrink its margins attract more retail investors.”
He said benchmarking of returns will be healthy step for the overall industry.
The gold reserves remained unchanged at $19.943 billion.
The country’s foreign exchange reserves rose by USD 163.8 million to touch a new life-time high of USD 393.612 billion in the week ended August 11, helped by rise in foreign currency assets (FCAs), the Reserve Bank data showed.
In the previous week, the reserves had increased by USD 581.1 million to USD 393.448 billion.
FCAs, a major portion of the overall reserves, rose by USD 175.6 million to USD 369.899 billion, the data showed.
Expressed in US dollar terms, FCAs include effect of appreciation or depreciation of non-US currencies such as the euro, the pound and the yen held in the reserves.
The gold reserves remained unchanged at USD 19.943 billion.
The special drawing rights with the International Monetary Fund (IMF) declined by USD 5.8 million to USD 1.498 billion.
The country’s reserve position with the IMF also dipped by USD 6 million to USD 2.271 billion, the apex bank said.
Foreign exchange reserves touched a record high of $381.96 billion as on June 16, compared $381.16 billion in the previous week, the Reserve Bank of India said in its weekly statistical supplement on Friday. Foreign currency assets (FCAs), the largest component of the foreign exchange reserves, increased to $358.08 billion from $357.28 billion in the previous week, central bank data showed. Expressed in US dollar terms, FCAs include the effects of appreciation/depreciation of non-US currencies, such as the euro, pound and the yen, held in the reserves. So far in 2017, foreign exchange reserves have grown 6% and have touched record levels five times since April, as the RBI has aggressively been buying dollars to prevent a sudden jump in the rupee.
The central bank has been buying dollars on a daily basis, both in the spot market as well as in the forward market, to limit the appreciation of the local currency, which has been gaining steadily, traders said. The rupee has gained about 5% since the beginning of the year. Among other factors, strong demand for the local currency from foreign portfolio investors (FPIs) looking to invest in Indian assets has caused the rupee to appreciate. FPIs have bought Indian shares and bonds worth around $22 billion so far in 2017. Given India’s low current account and fiscal deficits, and the advantage it offers in terms of interest rate differential, traders expect the inflows to continue in the near-term.
The central bank has always maintained that it does not want to influence the exchange rate for the rupee, but would take steps, including intervention in the spot market, to curb extreme volatility. According to the latest available data, the RBI’s outstanding net forward purchases in April stood at $13.55 billion, up from $10.84 billion in the previous month. On the other hand, net purchase in the spot market dropped to $0.57 billion in April from $3.54 billion in March. The RBI publishes data on the sale and purchase of dollar with a lag of two months.
Foreign fund inflows hit a record high. So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore.
The Indian rupee has been one of the best performing currencies among the emerging markets since the beginning of 2017, thanks to robust macroeconomic factors and attractive domestic bond yields. As a result, foreign fund inflows have hit a record.
So far this year, India has seen an inflow of nearly Rs 1.25 lakh crore, including Rs 73,200 crore in bonds, against an outflow of Rs 25,500 crore, a year ago. This is higher than foreign fund inflows in the first half of any previous calendar year, even as only the first week of June has got over so far. Given the present economic scenario, rupee is expected to sustain these levels and remain range bound.
India’s current account deficit has consistently improved over the years — from 4.8% of GDP in 2012-13 to expected 0.9 per cent in 2016-17, helped by weak oil prices, which constitute as much as 40-50 per cent of India’s imports.
With brent crude oil prices continuing to remain weak, down more than 8 per cent in the past two weeks and 1 per cent year-on-year, and the Reserve Bank of India keeping benchmark interest rate unchanged in its Wednesday policy meeting, the rupee is likely to continue to trade at the current levels vis-à-vis the US dollar in the short to medium term.
India’s foreign exchange reserves zoomed past their previous week’s record to touch a new high of $375.7 billion on May 5, data released by the central bank showed.
Foreign currency assets (FCAs), the largest component of the foreign exchange reserves, grew to $351.5 billion from $349.1 billion in the previous week, RBI data showed. Expressed in US dollar terms, FCAs include the effects of appreciation / depreciation of non-US currencies, such as the euro, pound and yen, held in the reserves.
India’s foreign exchange reserves zoomed past their previous week’s record to touch a new high of $375.7 billion on May 5, data released by the central bank on Friday showed. On April 28, the reserves were at $372.7 billion, the highest since September 9, 2016.
Dollar purchases by the Reserve Bank of India to ease volatility in the rupee exchange rate and increase in valuation of its assets has led to the jump in the forex reserves, traders said. The rupee has gained 5.3% against the dollar since the beginning of 2017. On April 26, it appreciated to 63.93 to a dollar, its highest level since August 10, 2015.
The central bank has always maintained that it does not want to influence the exchange rate for the rupee, but would take steps, including intervention in the spot market, to curb extreme volatility. According to the latest data available, the RBI bought $3.5 billion in the spot market on a net basis in March, while outstanding net forward sales stood at $10.8 billion during the month. The RBI publishes data on the sale and purchase of dollar with a lag of two months.
– Nifty surpasses March 2015 peak, Sensex gains as much as 2.1%. – Bigger-than-expected victory seen as endorsement of reforms
Indian equities rallied to a record and the rupee climbed the most since 2013 after Prime Minister Narendra Modi’s resounding victory in state elections boosted expectations for a continuation of his reform agenda.
The NSE Nifty 50 Index climbed 1.7 percent to 9,087, crossing its March 2015 record close, as the market reopened after a holiday. The India VIX Index, a gauge of expected stock-price swings, touched an all-time low. The rupee surged 1.2 percent to 65.8175 per dollar, the strongest level since November 2015. The central bank was seen buying dollars in early trade to cap gains but moved away later, Mumbai-based traders said.
“This win will give Modi the confidence to push ahead with more reforms and not pursue populist policies,” Sampath Reddy, chief investment officer at Bajaj Allianz Life Insurance Co., said by phone. The insurer, which oversees 480 billion rupees ($7.3 billion) of assets, is bullish on financial-services companies and metal producers, he said.
Modi’s Bharatiya Janata Party won 312 seats in the 403-member assembly of Uttar Pradesh, according to the Election Commission of India, up from 47 in 2012. The results in India’s largest state were seen as a litmus test of Modi’s popularity and reforms, including opening up the country to more foreign investment and seeking to introduce a goods and services tax, ahead of general elections in 2019.
While exit polls released last week suggested a large BJP victory was possible in Uttar Pradesh, the scale of the win was stark in a state that has long been divided along religious and caste lines. It is also a repudiation of political foes who assumed that Modi’s disruptive Nov. 8 move to junk high-value currency notes would be politically unpopular.
“Uttar Pradesh is a state where mandates have tended to be mostly divisive, so the result is a mandate for development, which has been sorely missing in the state,” Gautam Sinha Roy, a fund manager at Mumbai-based Motilal Oswal Asset Management Co., said by phone. “Markets will now start assigning higher probability to a BJP victory in the 2019 polls.”
India’s economic growth has been 7 percent or more in each of the last four quarters, which has helped lure $3.4 billion of foreign funds into local stocks and bonds this year. Mutual funds bought shares for seven months through February, including a record $2.1 billion in November. The S&P BSE Sensex has risen 11 percent in 2017, and the rupee is up 3.2 percent against the dollar.
“We expect the Reserve Bank of India to more actively cap further rupee gains given the sharp swing higher in the real effective exchange rate in recent months,” Divya Devesh, an Asia FX strategist at Standard Chartered Bank in Singapore, said by e-mail. He forecasts the rupee at 69 rupees to the dollar by year-end.
Pricey Valuations
The Nifty came off an intraday high of 9,122.75 as investor focus turned to a near-certain interest rate hike from the Federal Reserve this week and expected revival in corporate profitability. The Nifty and the Sensex are valued at about 21 times forward earnings, the highest level since April 2010.
“Valuations look stretched and investors are cautious with the Fed meeting round the corner,” said Sushant Kumar, a fund manager at RAAY Global Investments Pvt. in Mumbai. “Stocks have priced in the expected increase in rates. The focus is on Fed’s outlook.” The Nifty may reach 10,000 by March 2018, accompanied by as much as 14 percent expansion in earnings of its 50 members, he said.
Still, the scale of the BJP’s victory paves the way for further reforms and should lead to more inflows, supporting asset prices, according to Vikas Gupta, chief investment strategist at OmniScience Capital Pvt. in Mumbai.
“For international investors, India is one of the few emerging markets that has everything going for it: demographics, economics and politics,” he said. “With elections settled, it is clear that the federal government is now going to be fully in charge of the parliament.”
Continuing the rising trend, forex reserves increased by USD 253.6 million to touch record high of USD 365.749 billion in the week to August 5, the Reserve Bank said today.
The reserves increased despite decline in foreign currency assets (FCAs), a major component of the overall reserves.
In the previous week, the reserves had jumped by a healthy USD 2.81 billion to USD 365.49 billion.
FCAs declined by USD 765.4 million to USD 340.278 billion.
FCAs, expressed in dollar terms, include the effect of appreciation/depreciation of non-US currencies such as euro, pound and yen held in the reserves.
After remaining steady for many weeks, gold reserves shot up by USD 1.008 billion to USD 21.584 billion 20.58 billion.
The country’s special drawing rights with International Monetary Fund rose by USD 4.1 million to USD 1.488 billion, while the reserve position soared by USD 6.7 million to USD 2.397 billion.
