From Saturday we are being told by news channels of the upcoming reforms on Monday. The expectations had reached a crazy frenzy with news channels asking experts on what the measures would be and the possible impact.
The Rupee had appreciated by almost a rupee from Rs 57.3 to 56.5 levels. Equity markets were more guarded and up by 120-130 points. All were waiting for the so called killer app to take equity markets up by 1000 pts or so. The wait in dealing rooms was getting irritating as each time the newswires flashed the reforms in an hour or so..
And then came the announcement around 2.20 or so. And what does it say? Just 2-3 things:
- First, for Indian companies in manufacturing and infrastructure sector. They can use external commercial borrowing (ECB) to repay outstanding Rupee loans towards capital expenditure. The overall ceiling for such ECBs would be USD 10 billion. (More details here)
- Foreign institutional investors (FIIs) in Government securities (G-Secs) increased from USD 15 billion to USD 20 billion. The link here shows FII limits and how much is utilised. It shows most of govt. debt limit is already utilised. So, one can expect some flows from this side.
- The list of eligible investor base for FII in G-Secs expanded. Long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks can also invest in G-secs.
- The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 per cent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure. This list shows this limit has not been utilised so far. (See 4a).
Overall a disappointment for most. These announcements usually come post market hours and are just a normal kind of notification for markets. Yes, these are important announcements for market players but hardly the kind which can be dubbed as big economic reforms. This is more of routine stuff on expected lines which could have been passed minus all the hype generated. And it is high time SEBI/RBI release a primer explaining all these terminologies. There is little clarity on what each of the items in the table really mean.
The markets immediately tanked and Rupee went back to 57 levels. Equity markets also declined immediately. So, clearly a lot more was expected but not given my policymakers. It is all about expectations at the end of the day. The markets are to be blamed as well for expecting much knowing how things have been in the last few months. Time to be realistic.
A final word on the press release. This blog is a huge fan of way RBI under DR. Subbarao has tried to simplify things. However, similar effort does not show in such press releases. It does not come across as an easy reading and one has to read it many times to understand things. We have luxuries of newswires, market participants etc to understand some bit. But for someone on the normal street this is just too wonky. It does not help in understanding the meaning and the purpose etc.
Some efforts should be made to understand these issues better. A statement like this leaves you panting for breath:
It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding Rupee loans towards capital expenditure and/or fresh Rupee capital expenditure under the approval route