The Mumbai-based banks move to raise up to Rs 24,000 crore has boosted sentiment among currency traders who expect the lender to help offset multiple pressures on the rupee, which otherwise is expected to depreciate as the cost of funds in the US continues to climb an ascending gradient.
“This (HDFC Bank capital raising) will certainly be a support against any sharp rupee fall for now,” said Ashish Vaidya, head of markets for India at Singapore's DBS Bank. “The rupees medium term direction is more of a function of evolving global macro conditions. Uncertainties continue to weigh on the currency market.”
New Delhi has approved fresh share sales by HDFC Bank, permitting the blue chip lender to raise the funds from qualified institutional buyers.
At least half or three-fourths of the proposed sum is expected to come from bulge bracket overseas investors, who are now betting big on the worlds most valuable bank, dealers said. The institutional sale may formally begin next week, attracting overseas money.
“The proposed capital raising has suddenly lifted the mood as such fund flows will act as a shield,” said Anindya Banerjee, currency analyst at Kotak Securities. “The rupee is otherwise now in a fire quadrilateral, with oil prices, globally tighter central bank policies, domestic elections and foreign fund flows posing a threat to the local unit. Sizable fund inflows to a domestic bank should stop any rupee rout.”
The US Federal Reserve has raised fund rates by a quarter percentage point Wednesday, marking the second such increase this calendar year. It has also raised expectations for more tightening.
Globally, top central banks are winding down easy monetary policies, triggering reverse fund flows from emerging markets such as India.
The rupee was little changed Thursday at 67.63 per dollar as traders refrained from short-selling the local unit. It has lost more than 6% this calendar year due largely to rising oil prices, which threaten to worsen Indias fiscal deficit. The country meets three-fourths of its oil needs through overseas shipments.
Foreign portfolio investors have sold domestic equities and debt securities totalling about Rs 36,200 crore this year, show data from the National Securities Depository.