Keeping a watch on the record $22 billion foreign institutional investors (FII) investments in the booming Indian stock markets this year, the Reserve Bank of India (RBI) today said it will "intervene if the inflows are lumpy and volatile".
"We are watching the situation and our policy is clear. We will intervene if (FII) inflows are lumpy and volatile or they disrupt macro-economic conditions," RBI Governor D Subbarao said after a meeting of central bank board here.
The cross-country FII have pumped in the highest ever $22 billion so far during 2010 calendar.
On October 13, FII investment crossed the magical $22 billion or Rs 1 lakh crore in stock markets. The total inflows last year was $17 billion.
On robust foreign fund inflow, the rupee rose to touch a 25-month high of about 44 against the US dollar today, giving anxious moments to the policy makers and the exporters.
According to reports, the RBI had intervened yesterday by buying dollars in the foreign exchange markets to arrest the rise in value of rupee.
The sharp rise in FII flows to Indian stocks has pushed up the benchmark Sensex, which re-gained the psychologically important 20,000 mark in September, after a gap of 32-months.
Subbarao comments follow Finance Minister Pranab Mukherjee remarks in an interview to a private television channel ruling out curbing FII inflows.
SBI Chairman O P Bhatt said in Mumbai that capital inflows would remain high for some time. But the market would be in a position to absorb them for the next 2-3 months.
"There are things like the disinvestment programme, the Coal India IPO due to which the money will keep coming. The market will absorb for 2-3-months but I do not know what will happen after that," he said.
According to Ajay Sahai, Director General of export body FIEO, the FIIs could be dissuaded to bring in the money by putting a six-month cap on repatriation of their funds.
"They (FIIs) should only be allowed to repatriate their investments after six months," he said.
After touching a monthly growth of about 36 per cent in April this fiscal, the export expansion slowed to 22.5 per cent in August reflecting uncertain recovery in the western markets.
The concerns on higher FII inflows have been heightened by the forthcoming mega IPO of Coal India, which is expected to garner about Rs 15,000 crore (about $3.5 billion) with the involvement of FIIs.
"Situation which we are sensitive to, it (Coal India IPO) may put some pressure at least temporally," RBI Deputy Governor Subir Gokarn said. He was also here to participate in the board meeting.
