By IANS
Bangalore : Capital inflows into India will continue to surge, as global investors find the country attractive because of its strong economic fundamentals, ICICI Bank Ltd chief K.V. Kamath said here Thursday.
“Though capital inflow has been buoyant for a variety of reasons, it is the strong underlying economy that is attracting global investors to bet on India’s sustained growth path.
“Financial results for the second quarter show corporate profitability growing by 25-30 percent year-on-year (YoY). If the global liquidity remains flush as it is currently, capital inflows will continue to swell,” Kamath told IANS on the sidelines of an industry summit on quality.
Remittances from expatriates worldwide, growing at about 30 percent annually, are another reason for higher capital inflows. Remittances are set to touch $40 billion by this fiscal end from $30 billion in the last fiscal.
Kamath also said the latest cut in fed rate in the US would lead to a spurt in capital inflows into the secondary market, thanks to the sustained bull run.
“Interest rate adjustments may accelerate or decelerate to some extent. Since fundamentals are strong, we will see the flow happening more,” Kamath said at the 15th quality summit, organised by the Confederation of Indian Industry (CII).
At the same time, the head of the largest private sector bank expressed caution on short-term capital inflows, which tend to be based on irrational exuberance.
“As (former federal reserve chairman) Allen Greenspan once said, irrational exuberance is a danger zone. If we are in such a situation, it is a cause for concern, as volatility is detrimental to capital markets,” Kamath pointed out.
Referring to the pro-active measures taken by the central bank and the market watchdog Securities Exchange Board of India (SEBI) to regulate the capital inflows and the secondary markets, the CII vice-president said the union government should also continue to push the reform agenda.
“I do not see the reform agenda slackening. Signals from the union government so far indicate it is committed to reforms for sustaining the robust growth,” Kamath added.
Besides reforms, the government and its policymakers should address inflationary concerns as well as the strengthening of the rupee, he said.