- Axis Bank Chief Economist Neelkanth Mishra says panic drives concerns in India’s currency market
- Higher oil prices contribute to pressure on the rupee, impacting currency market sentiment
- Emerging markets like South Korea and China attract more foreign investors than before
Axis Bank Chief Economist Neelkanth Mishra said concerns around India's currency market are being driven more by panic and liquidity pressures than by fundamental weakness in the economy, asserting that there is “no need to panic” despite foreign investor outflows.
Speaking during a debate on foreign institutional investor (FII) sentiment and the rupee, Mishra said higher oil prices were one of the factors putting pressure on the currency market.
Explaining the recent FII behaviour, Mishra said emerging markets (EMs) have become more competitive compared to a few years ago when India stood out as the only major attractive destination for global investors.
He noted that countries like South Korea, China, Brazil and South Africa have seen improving conditions, making the broader EM basket more appealing for foreign investors.
According to him, FIIs are now demanding lower valuation levels before increasing exposure to India.
However, Mishra maintained that India's domestic economy remains strong.
On the sharp movements in the currency market, Mishra said exporters, importers and some foreign portfolio investors were engaging in excessive hedging, creating panic-driven liquidity stress.
“To stem that, you need crowd-control measures,” he said, suggesting that India should target global bond investors to stabilise the situation.
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Mishra proposed easing the 20% withholding tax on bonds, arguing that such a move could help India attract $85-90 billion in inflows over two years if the country secures inclusion in major global bond indices.
He added that bond inflows would provide relatively cheaper dollar funding compared to private equity capital.
“The currency market is in panic, so we have to take some hard and urgent measures. But beyond that, I don't think there is much reason to panic,” Mishra said.
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