Mumbai, Oct 19 The proposed measures of the Securities and Exchange Board of India on Participatory Notes will help moderate foreign capital inflows and their impact on the Indian rupee, said Mr Deepak Parekh, Chairman, HDFC.
“Unregulated foreign inflows are hurting the economy. Hedge funds have been leveraging their position and the proportion of derivatives has gone up,” he told reporters on the sidelines of an insurance seminar organised by the Indian Merchant Chambers.
The HDFC chairman said that the impact of the P-Note issue on the stock market would not be long term. This is a signal that India was getting far more money than could be hoped or expected.
“Foreign institutional investors have been given a window for easier registration. If even a fair share of the $60 billion worth of P-notes is converted into more FIIs registering through this window in the next 18 months, then this problem will disappear,” Mr Parekh said
The ‘P-note issue’ could have, however been handled in a more structured way, he added.
Regulating foreign inflows would also help in curbing the rupee’s appreciation, especially since exporters were getting hit.
“The BPO and IT sectors work on thin margins of 10-15 per cent and the 11 per cent appreciation of the rupee will hit them. The BPO sector, we have to realise, generates employment,” Mr Parekh elaborated.
On the upcoming review of the monetary policy, Mr Parekh said that he did not see a rise in interest rates. He, however, added that there was excess liquidity in the system and a hike in Cash Reserve Ratio would absorb some of the excess cash.
HDFC has been on the look-out for a partner in its non life insurance venture and Mr Parekh said the corporation would make an announcement by the end of October.
The corporation had parted ways with the US-based Chubb Global Financial Services Corporation in May this year.
Threat to MFs
Speaking earlier at the function, Mr Parekh said that in the free-price regime, non-life insurers would be strongly tempted to undercut each other.
The biggest problem faced by non-life insurers was false claims. On life insurance, he said that there needed to be change in the investment regulation for traditional endowment policies, which restricted equity exposure.
The life insurance sector invested Rs 1,50,000 crore in the stock market as on March 31, 2007.
“Mutual funds are now threatened by the rise of Unit Linked Insurance Plans,” Mr Parekh said.
