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FDI flow will not be impacted: HSBC chief

The global financial system is under strain, says Rangarajan

— PHOTO: V. V. KRISHNAN

AT LOW EBB: C. Rangarajan (centre), Rajya Sabha member, flanked by Harsh Pati Singhania (right), Senior Vice-President, FICCI, and Naina Lal Kidwai, Country Head-India, HSBC, at a conference in New Delhi on Monday.

NEW DELHI: The global financial turmoil, which has forced U.S. investment bank Lehman Brothers Holdings to file for bankruptcy, will impact the Indian stock markets but the FDI flows will not be affected, HSBC India Chief Naina Lal Kidwai said here on Monday.

“Where we are getting impacted is FII flows. So, it is more a stock market event. The FII flows coming into India have definitely been impacted, and that have slowed down, and, hence, the stock market is showing some of these impacts, so our linkage is not as great fortunately,” Ms. Kidwai told reporters. The FDI inflow was looking fine, Ms. Kidwai said on the sidelines of a seminar on financial inclusion, organised by the Federation of Indian Chambers of Commerce and Industry.

“FDI is more to do with the way companies perform. Right now, the FDI flow is still looking healthy,” Ms. Kidwai said. When asked that Lehman has taken exposure in many companies that would be impacted, she said, “I don’t think that will have a major impact at all.”

Collectively, all the companies where Lehman has invested in India had a market valuation of close to Rs. 40,000 crore on the last working day, which fell on Monday by more than Rs. 2,000 crore.

Besides having stake in listed companies, Lehman is understood to have invested in various projects of Indian companies, especially in the real estate sector.

In India, Lehman also acquired Brics Institutional Equity business of research analysts and sales and trading professionals, and purchased 26-per cent stake in Edelweiss Capital Finance — a non-banking financial company — recently.

Rajya Sabha member C. Rangarajan said that though the global financial crisis was a critical situation, one did not know whether the crisis had further deepened.

Dr. Rangarajan said, “There are differing views on whether the situation would further deteriorate or would remain at the same level.” Even if it remained at the same level of distress, it was still a bad situation, the former PM’s Economic Advisory Council Chairman said.

“The global financial system is under strain. The sub-prime crisis is no longer confined to mortgage market, and has percolated to the rest of the financial system, therefore, the banking system is under stress,” he said.

The dilemma that central bankers faced in these countries was between conflicting objectives of ensuring financial stability and controlling inflation, the former RBI Governor said.

What was required to contain inflation might not necessarily be appropriate for ensuring financial stability, he said.

The United States had followed the policy of giving priority to financial stability by letting the interest rates fall, he said, adding that perhaps time had come now that there might not be further fall in interest rates.

“If anything, there could be some tightening,” Dr. Rangarajan added. — PTI

Delhi Special Correspondent writes:

Inflation may dip

Dr. Rangarajan projected a dip in the rate of inflation to 10 per cent by December from the current level of over 12 per cent.

Dr. Rangarajan based his optimistic projection on the recovery in industrial growth to 7.1 per cent in July following dismal shows in the previous two months of the current fiscal. “My estimate is that probably by December, inflation rate may go down to 10 per cent,” he said.

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