Rupee has space to strengthen and can touch 64 to a dollar: K Harihar, FirstRand Bank
In a chat with ET Now, K Harihar, FirstRand Bank, says RBI is letting rupee strengthen because partly it helps in inflation containment and partly we do not want to necessarily subsidise the foreign investors.
Edited excerpts:
How are you looking at the strength in the rupee at 64.43 do you think there is more to go?
The rupee seems to have more of a runway in terms of strengthening and it is partly a global trend and partly a very India specific kind of trend.
Globally, post the Fed rate hike, the 10-year yield has actually dropped from the 2.5% plus to 2.30%. So there seems to be a very big consensus that the Fed rate hikes a) may not come up three times and may be done only two times and even if it were to happen, liquidity will remain surplus. In faraway South Africa, which has just undergone a downgrade or in other countries, there is a gush of liquidity that has entered both into the debt markets and the equity market.
Coming to India specifically, after the runup to the last credit policy where there was a bit of disappointment and the yields went up, that was the time when the yields looked so attractive that FII money was coming to the debt market and that trend seems to be continuing. Last calendar year, the FPIs were net negative of about Rs 14000 crore. This year, only three months and seven days have elapsed and we already have more than Rs 1 lakh crore net inflow into the system. There is nothing to suggest that this trend is going to change because the dollar index looks flattish, the liquidity globally looks very good and rush for buying high yield is pretty strong.
Even after yesterday’s credit policy where the interest rates were not lowered and the yields if anything edged up to 6.8% odd, you are going to see the G-sec as well as the corporate bond being an attractive place to park the money.
In the money markets, we expect the FIIs to continue to pump in money both into the debt market as well as in the equity markets for a different reasons. Now that GST is seen as passed and we expect to see it rolled out by July, that should work very well for corporate as well as government numbers. Of course, there is a bigger feeling that with more and more elections showing up results in a positive way for the ruling party, the Rajya Sabha passage of reforms will be easier and therefore broadly FII activity should be very good.
Coming back to your question, FIIs flows will continue and therefore the rupee has space to strengthen. Will the RBI be very aggressive in containing the rupee strength? So far their behaviour has been that they are letting it strengthen because partly it helps in inflation containment and partly we do not want to necessarily subsidise the foreign investors by giving them more rupees per dollar.
The volatility will be smoothened out but probably the rupee can go up to 64. If there is any global shock, then of course it will weaken but even then exporters should be on the standby to sell their forward dollars and that will probably contain any rupee weakness if at all at that 66 odd level.
Edited excerpts:
How are you looking at the strength in the rupee at 64.43 do you think there is more to go?
The rupee seems to have more of a runway in terms of strengthening and it is partly a global trend and partly a very India specific kind of trend.
Globally, post the Fed rate hike, the 10-year yield has actually dropped from the 2.5% plus to 2.30%. So there seems to be a very big consensus that the Fed rate hikes a) may not come up three times and may be done only two times and even if it were to happen, liquidity will remain surplus. In faraway South Africa, which has just undergone a downgrade or in other countries, there is a gush of liquidity that has entered both into the debt markets and the equity market.
Coming to India specifically, after the runup to the last credit policy where there was a bit of disappointment and the yields went up, that was the time when the yields looked so attractive that FII money was coming to the debt market and that trend seems to be continuing. Last calendar year, the FPIs were net negative of about Rs 14000 crore. This year, only three months and seven days have elapsed and we already have more than Rs 1 lakh crore net inflow into the system. There is nothing to suggest that this trend is going to change because the dollar index looks flattish, the liquidity globally looks very good and rush for buying high yield is pretty strong.
Even after yesterday’s credit policy where the interest rates were not lowered and the yields if anything edged up to 6.8% odd, you are going to see the G-sec as well as the corporate bond being an attractive place to park the money.
In the money markets, we expect the FIIs to continue to pump in money both into the debt market as well as in the equity markets for a different reasons. Now that GST is seen as passed and we expect to see it rolled out by July, that should work very well for corporate as well as government numbers. Of course, there is a bigger feeling that with more and more elections showing up results in a positive way for the ruling party, the Rajya Sabha passage of reforms will be easier and therefore broadly FII activity should be very good.
Coming back to your question, FIIs flows will continue and therefore the rupee has space to strengthen. Will the RBI be very aggressive in containing the rupee strength? So far their behaviour has been that they are letting it strengthen because partly it helps in inflation containment and partly we do not want to necessarily subsidise the foreign investors by giving them more rupees per dollar.
The volatility will be smoothened out but probably the rupee can go up to 64. If there is any global shock, then of course it will weaken but even then exporters should be on the standby to sell their forward dollars and that will probably contain any rupee weakness if at all at that 66 odd level.
