Foreign inflows will continue despite PN scare

Foreign fund inflows continue to remain strong even now despite the proposed clampdown on participatory notes (P-notes ) and volatility in the markets.

According to ICICI Bank managing director and CEO KV Kamath, investors still believe in the long-term growth story for India. In his view, the country will see a sustained 10% growth in GDP over the medium term, though the concerns over rising inflation have been weighing heavily on the economy.

“The strengthening rupee has been a challenge,” Mr Kamath admitted, as he called Sebi’s proposals on P-notes a step in the right direction. “The strengthening rupee is a challenge, and all tools in the monetary policy context have to be used to bring it under control ,” he pointed out. There have been foreign investments to the tune of over Rs 33,700 crore since September 18, when the US Federal Reserve had cut interest rates.

The rupee has also seen an appreciation of over 11% in the past one year. However, though attempts to curtail the massive inflows and the rise in the rupee have been made, the inflows still continue to be strong, he added. Mr Kamath went on to compare the growth phase of India to economies like Japan and China which experienced 10-15 years of sustained higher growth in GDP as well as volatility in exchange rates and inflation while they were in a similar stage of development.

“So, I would think that we are looking at 10-15 years of sustained growth rate,” he explained. Inflation may rise again, as global crude oil prices continue to rise, touching an all-time high of $90 last week. He also said that a slowdown was visible in certain sectors and that a clearer picture could be obtained only after seeing the financial results of corporates in the second quarter.

At the same time, ICICI Bank will wait for cues from the central bank’s upcoming monetary policy review before it takes any decisions on deposit rates, Mr Kamath added. But he refused to speculate on the possible outcome of the policy. The bank had recently cut interest rates on certain special deposit schemes by 50 basis points.

Mr Kamath added that ICICI Bank’s New York branch, for which it received approval from the US Federal Reserve last week, would initially focus on wholesale banking and then look at other segments.