Remittances by overseas Indians set to hit record $76 billion amid rupee slump

Bloomberg

Lured by the sharp slump in rupee against the dollar, Indians living overseas may boost remittances to a record, helping bolster the nation’s efforts to support Asia’s worst-performing major currency. The country is expected to receive remittances of about $76 billion in 2018, 10 percent more than in the previous year, according to estimates by EbixCash, the financial exchange unit of US-based insurance software provider Ebix Inc. About three-fourth of the inflows come via Ebix’s outlets, the company said.
Flows from an estimated 20 million nationals working abroad will help bolster India’s efforts to cap the nation’s current-account deficit. Without remittances, the gap would have been about 5% of gross domestic product at mid-year, instead of 2%, according to Capital Economics.
“When rupee depreciates so sharply, inbound sources of money get active,” Hariprasad M.P., head of treasury at EbixCash, said in an interview on Wednesday. “These inflows are important for the economy at this juncture.”
A global emerging-market sell-off that’s triggered outflows from Indian bonds and stocks saw the rupee setting a string of fresh lows earlier this month. Likely intervention by the Reserve Bank of India in the forex market, a drop in prices of oil — the South Asian country’s top import — and easing of rules on overseas borrowings have helped steady the rupee off late.
The rupee fell 0.30 percent to 73.3725 per dollar in Mumbai on October 25. The currency has gained 1.5% since falling to a record 74.4825 on October 11.
“At the moment, we don’t see downside risk for the rupee at least till December,” said Hariprasad. “It is unlikely to run toward 75 in the near-to-medium term.”
India’s second-oldest mutual fund wary on debt from financiers India’s second-oldest mutual fund has grown wary on non-banking financial companies after landmark defaults by IL&FS group fueled a cash crunch in the sector.
Canara Robeco Asset Management is exercising caution on investments in short-term debt issued by NBFCs, as the fallout from Infrastructure Leasing & Financial Services Ltd. adds to strains caused by asset-liability mismatches. The company is a joint venture between Canara Bank and Netherlands-based asset manager Robeco.
IL&FS shocked India’s credit markets with missed payments on commercial paper and other short-term borrowings starting in August. Challenges have since mounted. NBFCs must repay about 1.2 trillion rupees ($16.4 billion) of commercial paper in October-December to mutual funds, near a record 1.46 trillion rupees in August-October. That’s just as yields on five-year top-rated bonds issued by the lenders have jumped to near the highest in four years at 9.12 percent.
“A triple-A bond is top-rated till it blows out,” said Avnish Jain, head of fixed income at Canara Robeco Asset Management, in an interview. Investors need to be more vigilant in tracking market rumors about NBFCs at this point, he said.