No rush for cap on foreign funds inflow: Pranab

Finance minister Pranab Mukherjee has ruled out any control on overseas fund flows for now as he sees no 'bubble' in the asset markets. ''We are watching the inflow of funds, but I do not think it's time to put any restriction on it,'' Mukherjee in said a TV interview on Monday. ''I feel we do not need to be panicky but should be careful and cautious.''

In another interview last week, he had said that domestic stock markets have an appetite for more foreign investments, as FII inflows were still at moderate levels. He also made it clear that it was not yet time for government intervention to check FII inflows.

''We will have to make an assessment about how much of inflows will lead to overheating ... we will have to see whether money is coming in for a very short term, medium term or long term. What we know is that countries where safe investments can be made are still in some difficulty, and their recovery process is still not robust. The recovery is weak in the whole of the euro zone, except Germany and France. North America is also not very strong.''

His statements come as economists worry about a widening current account deficit and its effect on soaring prices. Policymakers would be vigilant to prevent any destabilisation, but would not rush to decisions that would compromise economic expansion even if short-term factors hurt exporters.

India has received the highest inflow of foreign funds - nearly $19 billion - into equities this year since it opened the doors to overseas investors nearly two decades ago. Citigroup forecasts it to rise to $25 billion as yield-chasing investors are lured by the country's 8.5 per cent economic growth. But that has forced the rupee to appreciate against the dollar, hurting exports and boosting imports, leading some to fear about possible currency volatility.

The inflows have, however, helped benchmark Indian equity indices to scale near-record levels even as many emerging market peers such as China and Russia are still a distance away from their all-time-high levels. The Sensex, after rising 81 per cent last year, is up about 17 per cent this year, probably the highest among major developing economies. This gain has triggered some fears that the markets, including real estate.

''Always the fear of having some sort of a bubble would remain,'' said Mukherjee. ''I do not think that it's time to put any restriction on it. One of the reasons of this upswing is that robust recovery expected in North America and Europe has not yet taken place and IMF forecast has also been revised.''

Cumulative net FII inflow in equities and debt market till October 1 is pegged at $109 billion, of which $92.03 billion is in equities and $17.28 billion in debt. Net FII inflows since Mukherjee presented his budget on 26 February are pegged at $26.33 billion, of which $19.02 billion are in equities and $7.33 billion in debt, according to FC Research Bureau data.