Exporters worried over foreign fund inflow

MUMBAI - Foreign capital inflows that helped equities markets rally handsomely in the second half of 2010 and led to a sharp rise in the rupee has now forced exporters and analysts seeking government intervention in curbing such inflows.

Exporters fear that if the rupee continues to appreciate like this, it would adversely impact their profitability and even affect their competitiveness. Also, they might loose out on their future orders vis–vis other countries.

The rupee closed at 44.04 per US dollar Friday, a rise of 0.2 percent from the previous day. It had climbed to Rs.43.96 to the dollar, its strongest level since August 2008.

According to Bloomberg data, the rupee gained 5.3 percent in the past month as global funds poured in over $23 billion in stocks and $10 billion in the debt market.

Calls for curbing the appreciating currency have started gaining strength with one of the largest software exporter Infosys seeking the Reserve Bank of India’s intervention.

“The RBI should intervene right now to halt heavy speculative inflows through the FII (foreign institutional investments) route to reduce the currency volatility, which is currently ranging from 10-15 percent,” said Infosys Chief Financial Officer V. Balakrishnan.

The RBI did intervene Friday in the forex market in what was the first such move by the central bank. Forex traders put the intervention in the range of $400 million. State-run companies also bought the dollars worth over a billion.

However, the upward pressure on the currency is expected to be continue in the wake of Coal India’s $3.5 billion initial public offering opening Monday.

Foreign institutional investors are eyeing the stock with a lot of interest, according to brokerage reports, putting additional pressure on the rising currency.

The Federation of Indian Export Organisation (FIEO) has written to the finance and commerce ministry seeking their immediate intervention in curbing the appreciation of the currency.

The rising rupee is also putting margins of domestic manufacturers under pressure.

“With further appreciation in rupee and hardening of interest rates, the growth of manufacturing sector may be significantly affected,” said Amit Mitra, secretary general, FICCI.

The benchmark index of the Bombay Stock Exchange (BSE), the Sensex, has rallied over 15 percent in 2010, backed by the $23 billion of funds pumped in by foreign financial institutions.

In October itself, overseas money inflows are nearing $5 billion, all in just two weeks of trading.