Dollar to remain weak against EM currencies: StanChart

Aiming to attract more foreign funds, the government is said to be in talks with JP Morgan and others to gain entry to benchmark indexes for emerging market debt.

In an interview to CNBC-TV18, Agam Gupta of StanChart Bank said, funds that would flow through this route would be stickier and any announcement on the same is likely in next few weeks or months. According to sources, to qualify for entry into the JP Morgan Government Bond Index - Emerging Markets, the Indian government will have to relax rules on registration, documentation, due diligence for the entry of FIIs in the Indian debt market. Meanwhile, Gupta expects the rupee to find support at 60.70 and 60.50/USD if it breaks 61/USD. Also, he added that dollar will continue to be weak against EM currencies. Below is the edited transcript Agam Gupta’s interview with CNBC-TV18 Q: Your view on the reports yesterday about the government meeting officials with regards to the emerging market (EM) debt bond indices, what is your view on the same? A: Our view is that the government and Reserve Bank of India (RBI) are in active consultation with the agencies and the authorities across the world that would be running with these indices. It seems talks are happening, I get the feeling that India is keen to get into one of these indices. It will depend on a bit of give and take as the governor said they might not be willing to attend to all the regulations and stipulations of the indices. It is in discussion stage at the moment and something can be expected to be announced in the coming weeks or months. Q: If this global risk-on has to continue for some more time and if we see quite a bit of rally in equity markets backed by flows, do you think the rupee has a chance to go to 59/USD or would 60/USD be a barrier for the currency? A: This area of 61.25/USD has been holding for the last couple of weeks and it looks like we are trading below that anyway right now. Once 61/USD breaks, we have support at 60.70 and 60.50/USD. It is a support zone, but it can even dip below 60/USD. Q: What is your view if in case there is an inclusion to the emerging market debt indices for India will the vulnerability increase in terms of outflows such as hot money outflows, something which we saw all of May and June because of the taper talk? A: This money that comes in is slightly on the sticker side, so even in terms of risk aversion you do see some outflows. The inflows would be more and there could be a period when there are some bunched up outflows. But on an incremental basis, we will see inflows and once we get included in the indices, what we are led to believe is that the money that comes in is more sticky than the other kind of money.