Unregulated foreign fund flow hurting economy: HDFC

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Deepak Parekh HDFC said that unregulated foreign fund flows are hurting the economy. He added that the P-Note's curb impact on the share market will not continue.

 

According to Parekh, a sharp rupee rise is undesirable as exports will collapse. He added that property prices have softened.

 

Excerpts from an interview with Deepak Parekh:

 

Q: Is the P-Note Clam down justified?

A: With the P-Note the issue is that unregulated inflows are hurting our economy and we cannot have a stop-go, stop-go situation but it had exceeded far too much in the last 2-3 weeks, where not only hedge funds were sending money but also hedge funds were leveraging positions. The derivative position in that has gone up significantly, so some efforts.

 

I think it's taken not in the right spirit by the media and the press because first of all its 18-months and not that it is banned totally. They are opening the FII registration window. The FII registration will be quicker, simpler, faster and there will be more FIIs coming in. So if you want to come to India, register yourself and tell us who you are? Because money laundering has happening, KYC norms are there and we want to know who is putting money into India.

 

Q: Impact on the stock market?

 

A: Impact on the stock market I don't think it should continue because it is a long time and in that 18-months suppose you say USD 60 billion have come through the P-Notes and if part of that or a fair amount of that can be converted into FIIs in the next 18-months then the problem disappears.

 

Q: But the market has been falling for the last 3 days do you think this is the impact of only the P-Note impact?

A: Certainly it's a signal that we don't want unregulated flows of money and that we are getting far too much money than we ever hoped or expected. So there has to be some curtailment. Again you cannot in one-day say we want more for an investment and then second day say we don't. So we have to be a little careful.

 

We don't want our rupee to appreciate significantly; the entire import industry will collapse. The BPO Industry has no more than 10-15% margins and if the rupee has appreciated 11% in this year, the margins of BPO industry are threatened and BPO gives employment. So you have to look at the overall scenario. It's not just banning P-notes.

 

Q: But should the policy in the way that it is already there or do you suggest any changes?

A: I think time should be given; it should be done more structurally. FII registration should become easier and simpler and I think these steps are being taken.

 

Q: Do you see any impact on interest rates?

A: I think interest rates are steady, they will remain steady and I don't see a case for increasing interest rates.

 

Q: Do you se them falling?

A: There is excess liquidity in the system. If interest rate falls then CRR has to go up because you can't put just so much money in circulation and if CRR is hiked because then money is coming into the market and money is absorbed by the hiked CRR. So the governor has tough job, lets see what he comes out with.

 

Q: Do you think convertibility will come?

A: No.

 

Q: What do you think about property prices?

A: Property prices have softened a bit I think. I hear from people that property prices have softened, sales are slow and they have come down significantly and actual users are coming back into the market and investors are pulled out of the market.