Concerns on Unfunded CAD are overdone

Sep 09 2013, 10:58 IST
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SummaryQ2 will be the most painful quarter we have seen in this downturn

regards the funding side, assuming that FDI inflows in FY14 are recorded at $10bn (v/s the five year average of $18bn), banking capital flows are recorded at $5bn (v/s the five year average of $7bn), loans based net inflows are recorded at $10bn (v/s the five-year average of $20bn), then the funding gap amounts to $35 bn (i.e. 60-10-5-10). This gap is likely to be funded using a combination of FX reserves, quasi-sovereign bond issuancebond issuance and the swap line that has been set up with the Bank of Japan. Whilst this is not an ideal situation to be in, this situation does not amount to an FX crisis.

The author is CEO, Institutional Equities, Ambit Capital

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