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Indian markets seen

optimistic on

election outcome

BOMBAY: Indian money and foreign exchange markets appear unperturbed ahead of national elections due later this month as major post-poll changes seem unlikely, bankers said on Friday.

"The economic agenda is almost the same," said the treasurer of a European bank in Bombay, referring to manifestos of the ruling Congress Party and the Bharatiya Janata Party (BJP), the main opposition challenger.

The elections to the 543-member lower house will be spread over five days beginning on April 27 and ending on May 30. Counting in most constituencies begins on May 8.

Both parties have said they are committed to continuing deregulation and liberalisation measures initiated by the present government in 1991.

"If anything, things should get better," said a dealer at a state-run bank, referring to recent steps by the Reserve Bank of India (RBI) to increase funds with the banking system to ease a shortage of liquidity which is hurting industrial growth.

With a new government, the RBI will be more courageous in taking further steps like a fresh cut in CRR (cash reserve ratio) to ease the liquidity shortage, analysts said.

"With election compulsions behind, the pressure on the RBI to throttle money supply growth will ease," said Crosby Securities in its March India review.

"Cash flows from the formal to to the "parallel" economy in the run-up to the elections will reverse its direction and seek profitable avenues in the bourses," it said.

But demand for money would continue to be high after the polls, keeping interest rates at the current levels of around 18-20 percent, said Sunny Oberoi, India managing director of U.S. fund manager Capital International Inc.

He expected the industry's unsatiated hunger for funds to continue until the first quarter of calendar 1997 when large foreign direct investment in Indian projects is expected.

Analysts said large portfolio and direct investments expected after the elections would put pressure on the RBI to buy dollars heavily to counter rupee appreciation.

This should also release rupees into the banking system, fuelling a rise in the inflation rate which analysts say is inevitable because of the expected upward revision in the price of goverment-fixed articles like petroleum products.

Reining in inflation will be a major task for the central bank in the post-election months, most analysts said.

Foreign exchange dealers expect the rupee to continue strong after elections on the back of large dollar inflows.

"I expect the dollar to trade in the 34.50-35.00 range until the fiscal end," said Ravi Kumar, chief forex dealer of ABN-AMRO Bank in Bombay. The dollar is now trading at 34.20 rupees.

He said high Indian interest rates would induce local companies to seek overseas debt, adding to dollar inflows.

Another dealer said he expected to see a short-term run on the rupee in the event of lack of majority for any group in the new parliament. "But this is most unlikely," he added.-Reuter