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Arushi Sen

Mumbai, Aug. 8 There are mixed views in the market about the impact the new external commercial borrowings (ECB) norms will have on different sectors that were hit by the sharp appreciation of the rupee.

According to the new regulation, companies borrowing more than $20 million will have to park those funds overseas, and will have to seek permission from the Reserve Bank of India to repatriate the same or lesser amount of borrowings.

This move is to check the rise in rupee value against other currencies by managing flow of foreign funds into the company. On Wednesday, the rupee closed at 40.52/53, 12 paise weaker than Tuesday.

The new ECB norms are expected to give an indirect boost to sectors such as IT and textiles, whose stocks have taken a hit due to a slowdown in exports. The immediate effects were visible on Wednesday with the IT sector leading the rally in the Sensex, with the index gaining more than 4 per cent to close at 4808.43.

However, the consensus amongst analysts is that this is only a short-term benefit.

“Today, IT stocks rose as a knee-jerk reaction to the announcement. This sort of capital control will be a short term benefit, in the long term, one cannot say what the impact will be,” said Mr Harit Shah, IT analyst, Angel Broking.

The same view is held for the textile sector as well.

“It is positive to the extent that the rupee appreciation will be controlled and sectors like textiles and IT, which were badly hit, will stand to gain now. However, this benefit is only for the short term,” said Mr Jigar Valia, textile analyst, Parag Parikh.

“The positive news is that the rupee will not appreciate further, which should give some relief to exporters, but the effects will only be visible from the next quarter,” said Ms Fasiha Shaikh, textile analyst, Angel Broking.

However, the flipside is that there is now one less avenue for expanding companies to raise funds.

“Companies that are currently undertaking large capex will lose out as their money raising avenues are restricted, said Mr Harinder Kumar, ICICI Direct.

The banking sector is expected to benefit the most from these new restrictions as companies looking to raise money abroad now have to turn to domestic banks for credit.

“The domestic banking sector would do really well as a result of these norms. Credit had seen a degrowth in the past, as companies could raise cheaper money abroad. With these new norms in place, the banking sector is poised to do very well,” said Mr Kumar.

The banking index gained 1.86 per cent on Wednesday to close at 8,076.32.

“We will see the impact of this announcement fully after the second quarter because that is the quarter when credit growth picks up. Banks will do well as domestic banks will be the obvious substitute for ECB’s and this will lead to an improvement in the bank’s profitability,” said Ms Sarika P. Lohra, banking analyst, Angel Broking.

More Stories on : Financial Policy | Overseas Borrowings | Stock Markets | Forex

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