India's Long-Term Growth Story Intact Despite Global Headwinds: HDFC Securities

India's long-term growth story intact despite global headwinds: HDFC Securities' Devarsh Vakil

Mumbai, May 18

Speaking to ANI, Vakil said concerns around falling foreign exchange reserves and rupee depreciation are manageable and not alarming at present.

"The long-term story of India is very much intact," Vakil said.

He added, "6% to 7% growth is going to be there for the foreseeable future. As we discussed, we have forex reserves to support our currency. Most of our debt is rupee-denominated, so we don't have that much problem from forex from the external angle."

According to Vakil, India's banking sector also remains healthy, creating room for credit growth.

"The banks in India are very healthy. Their--the NPA situation is under control, so there is room for banks to lend and grow," he said.

He further highlighted that India's trade agreements with several global partners would support economic growth.

"India has done a lot of free trade agreements with other partners like the UK and EU. The deal is also being negotiated with Australia, and other parts have done well. The US deal is going through. So, this will help our economy," he said.

"I think this will curtail--support our economy. So, I feel that short-term challenges are there, but longer-term, India's story is still intact," Vakil added.

On the decline in forex reserves, Vakil said the Reserve Bank of India (RBI) has been actively intervening in the currency market to reduce excessive volatility in the rupee amid global uncertainty.

"The RBI has been actively selling dollars to shield the rupee from unwarranted volatility, as we all know because of the global geopolitical tensions. That's why our forex reserves are falling," he said.

"Forex reserves have dropped around 5% from the all-time high. Around 730 billion dollars we had. Now it has come down to around 690 billion or so. So, about 5% it has come down."

However, Vakil maintained that the reserve position remains comfortable.

"This is not very alarming, actually. We have comfortable forex reserves. Right now, I think these forex reserves are comfortable for eight months of import cover. I think this is nowhere near any concern. We should not be overly worried about this," he said.

Explaining the RBI's approach, Vakil said the central bank is using reserves as a "shock absorber" instead of defending any fixed rupee level.

"Basically, RBI is using it as a shock absorber rather than fixing a--one artificial level for rupee," he said.

"Because of the depreciation and these global headwinds, there is a massive shortage of US dollars in India, and that's why it is putting pressure on USD/INR, and that's why INR is depreciating. And RBI knows that."

Vakil noted that the RBI has also introduced regulatory measures to curb speculative pressure on the rupee.

"They cannot just fix a rupee level, so they are letting it depreciate. So, whenever they see some unwarranted speculation, they bring out new regulation, like they have recently capped the commercial banks' daily net foreign currency exposure. They have also restricted the speculation in rupee in the non-deliverable forwards. So, using all these steps to stop rupee from crashing," he said.

On Prime Minister Narendra Modi's appeal to reduce gold purchases and overseas travel to help conserve reserves, Vakil said the move may provide temporary support.

"I think it will work in the short term, but longer term, obviously, we will have to wait for the global geopolitical crisis to come down, and that will help the currency appreciate afterwards," he said.

Vakil also said the RBI is expected to pay a strong dividend to the government this year, aided by gains from its gold holdings and reserve management.

"The union budget, I think they budgeted about 3.16 lakh crore, which is a huge number compared to around 2 and a half lakh, 2.7 lakh crore number last year. So, this time, a bumper dividend is expected from RBI to the government," he said.

— ANI