Re recovery on hopes of measures to be announced: StanChart

The Finance Minister late last week indicated that the government would be announcing measures to boost the economy today, but no such announcement has come yet. Sources tell CNBC-TV18 that the government may hike the foreign intuitional investors (FIIs) limit in corporate bonds to over USD 30 billion as an attempt to curb the rupee fall. Reports also indicate the government is considering issuing bonds for non-resident Indians through state-run banks at around 7-9% interest rate.

Gupta says the move on FII limits and non-resident deposit rates would be positive for the rupee. The biggest positive impact, he says, will come if there is a sovereign bond issue or a special NRI scheme. “However it is unlikely to be announced today because they would probably keep that measure for a time further in the future,” he said.

For the near-term, Gupta sees the new high of 57.35 a dollar act as a resistance for the rupee.

Below is an edited transcript of his interview with Ekta Batra and Latha Venkatesh. Also watch the accompanying video.

Q: What sort of measures do you expect the Finance Minister to announce and which one do you think would be the most effective at this point?

A: As everybody we are also speculating on what measures could be announced. We do expect some measures which could be around either freeing up or raising the cap on the FCNR (B) deposit rates. They might tinker around with the FII limits - they could re-carve the limits from the infrastructure segment, which is unused, and put it into the government and corporate debt segment

There were rumours last week of withholding tax being reduced around the FII debt segments, and that would be very positive also. Obviously there are talks around the sovereign bond issue or a special NRI scheme which would be a big bang, but that is unlikely to be announced today because they would probably keep that measure for a time further in the future.

Q: How much of the rupee bounce back is contingent on the government announcing something and how much was anyway coming in?

A: No, steps will probably come by end of day or after the market close. If there are no steps then we will again test 57-57.25.

The bounce back today is primarily on two accounts; one is that there seems to be some resolve now from the regulator and the Ministry of Finance to curb the rupee move and secondly the expectation that measures will be announced. So yes, if there are no measures that will be extremely negative for the rupee.

Q: What are the limits available now on government securities? I know after this new churn rule, it maybe difficult to know the exact position at the moment. but how much headroom is already available?

A: There is very little which is available; it is mainly fully utilized.

Q: In corporate bonds?

A: In the old limits most of it is utilized. So it is basically the infrastructure bonds where the limit is not utilized.

Q: There is a lot spoken about how the rupee depreciation is in line with currencies in other countries which have equally high current account deficits. Give us a sense in terms of what you have seen in terms of comparison and what sort of measures those countries have taken which could possibly be replicated in India?

A: If you look at Brazil and South Africa, their currencies have depreciated pretty much in line with the rupee. If you look at it over the last one year, they are all in the range of 20% depreciation. They all do have different kind of peculiarities on their own though. Brazil is an exporter country so they are happier with the weak currency. A part of the weakness was driven by their authorities, but once it went weaker they started intervening to curb its weakness. But the move was started by the regulator because they wanted a weaker currency.

In South Africa there is no policy of intervention and that moves on its own. It has been moving because it was recently upgraded by some banks and included in the global bond fund, so there were inflows there. So each country has its own peculiarities.

If you look at what you can replicate from these countries, I don’t think there is anything you can directly pick up from there. What you have to do is basically focus on your fundamentals and go from there.

Q: What is the market looking at in terms of a top now for the dollar? Is 57-57.30 looking like a support for the rupee?

A: Yes, at the moment obviously 57.30, the high we saw on Friday, will be a near-term top because that is a recently trade level and we have seen a big down move from there. So at the moment that will be a significant resistance.

Q: Were exporters selling at that level at all?

A: No, there was absolutely no exporter selling. We saw exporter selling at 56 area and once we broke through above 57 everyone is holding back.