MFs fear large-scale investor exit on yuan devaluation
17 Aug 2015 5:48 AM IST
Mutual funds managing offshore money are fearing a large-scale investor exit in the event of a further depreciation in the rupee, which has been hit hard after a surprise devaluation of Chinese currency yuan last week.
The rupee had touched a low of 65.10 on last Thursday but gained 10 paise to close the week at 65. The Friday rally was fuelled by <g data-gr-id="32">expectation</g> that the Reserve Bank will cut interest rates after both retail and wholesale inflation plunged to historic lows in July.
Secondly, the fund houses have invested in sectors like steel and textiles, where the domestic companies are competing with Chinese firms.
The yuan fall will further increase dumping of Chinese steel and textiles. Last year, the share of Chinese steel imports more than doubled to 3.9 million tonnes, according to official data. Therefore, fund houses feel that any further price cuts of Chinese goods will make domestic companies unsustainable.
UTI MF, which manages $2.5 billion of overseas funds through its Singapore subsidiary UTI International, said it is watching the development.
“It is too early to take any call at the moment, but we are waiting and watching. We do have products which invest in G-secs and even equities,” UTI MF Group President (Sales and Marketing) Suraj <g data-gr-id="29">Kaeley</g> said. However, the fund houses believe that rupee fall may help the exporters as “decline in the yuan has impacted most emerging markets and Asian currencies and the pressure on the rupee must be seen in that perspective.
“The rupee has been one of the <g data-gr-id="37">best performing</g> currency for last one year and it will help maintain export competitiveness to our exporters,” SBI MF chief investment officer Navneet Munot said, adding
“we are underweight when it comes to investing in metals and textiles.”
Quantum Asset Management Company, which has invested in sectors like steel and textiles, also said it is watching these sectors closely and will take a call only when the valuation of these sectors goes down significantly.
“We do have invested in domestic steel and textile sectors, where domestic companies are competing with Chinese firms. In case the price of these goods goes down further, then we will have to shift our funds to some other sectors,” Quantum AMC chief executive Jimmy Patel said, adding “we are assessing the scenario before we take a call.”
Response to deal with yuan devaluation impact soon
Amid concerns over <g data-gr-id="85">devaluation</g> of Chinese yuan hitting Indian exports and investments, Finance Secretary Rajiv <g data-gr-id="81">Mehrishi</g> said the government will come out with a “carefully thought-out response” to deal with the situation. In an interview, <g data-gr-id="82">Mehrishi</g> pushed for RBI cutting interest rate to encourage manufacturing and boost exports, arguing risks are not much as inflation is low. China last week devalued the yuan to combat the deepest economic slowdown since 1990 amid falling exports. The move has made Indian exports to the communist country more uncompetitive and is likely to further widen the bilateral trade gap. “Where we are competing with China, our exports are likely to be adversely affected (following yuan devaluation).
Next Story
