India Economics: Investor Feedback from Marketing Trip in Asia

Research evidence excerpt

India Economics: Investor Feedback from Marketing Trip in Asia

ows are attracting lot of investor attention with wide-ranging speculation on

how much inflows can come due to these announcements. Our estimate of USD

55-60bn additional inflows under these schemes were thought to be

conservative though we must add that there are now upside risks to our estimates

given that last week RBI had explicitly allowed local banks to directly provide

leverage to NRIs. This substantially widens the scope of the FCNR(B) scheme

though the banks might now use the Overseas Foreign Currency Borrowing (OFCB)

route less frequently. The only constraint to this scheme now seems to be the

ability of the local banks to raise dollars offshore without pushing up the borrowing

spreads meaningfully. The fine print of the FCNR(B) scheme are likely to be still a

work in progress and hence there was curiosity around the timeline of inflows.

There appears to be decent appetite for PSU corporate issuances at this point, and

we are comfortable with our view of USD 10-15bn coming through that route.

The currency view: The mood amongst fixed-income investors has clearly been

lifted following recent developments. On the currency front, there is still

hesitancy in positioning for an outright INR appreciation, but most investors

agree that the depreciation bias would be lower even in a strong USD

environment. Also, the increase in FX reserves would enhance RBI’s ability to keep

a low volatility environment. In turn, this incentivizes investors to be attracted

towards INR from a carry to vol perspective. Even from a relative value trade point

of view, going long on INR versus a funding currency seems to be a preferred trade

among investors. There was lack of clarity regarding how much of the FCNR(B)