All is well, but rupee outlook for new Samvat not that good
, ETMarkets.com|
Updated: Oct 18, 2017, 03.24 PM IST
NEW DELHI: Samvat 2073 was an eventful year for the currency market, as the rupee struggled to stabilise from an all-time low level hit in the very first month of the traditional accounting year.
The domestic currency now trades at the 65 level, rising from near 69 level hit last November. Weakness in the dollar against a group of six global currencies amid doubt over US President Donald Trump’s tax reforms and US Federal Reserve’s inflation targeting helped the domestic currency gain in Samvat 2073.
But as the US central bank kicks off unwinding of its $4.5 trillion balance sheet and concerns loom over economic slowdown back home, analysts look divided on where the domestic currency is headed in Samvat 2074.
Analysts from 12 domestic brokerages polled in an ETMarkets survey expect the rupee to trade in the 65-63 range next year, while others see it depreciating to 67-68 level during this period. None of the analysts surveyed expected the currency to revisit the record low level of 68.86 hit in November 2016.
Rakesh Tarway, Research Head at Reliance Securities, believes visible hardening of yields across developed countries, widening domestic twin deficits and the government’s endeavour to promote exports are unlikely to power any meaningful appreciation in the rupee.
The rupee is still overvalued by 10-15 per cent in real effective exchange rate, says Tarway.
Vinod Nair, Head of Research at Geojit Financial Services, expects the domestic currency to hit the 67-68 range in the new Samvat year.
Jimeet Modi, CEO of Samco Securities, projects the 67-68 range for the rupee by next Diwali.
Other analysts remain positive on the local currency. Vaibhav Agrawal, Head of Research & ARQ, Angel Broking, expects the rupee to remain stable in the 63-65 range.
Pankaj Pandey of ICICI Securities has a similar view and sees the local currency in the 66.50-63.50 range with a bias towards appreciation.
Samvat 2073 began with a shock election win for Donald Trump in the US presidential election. His rhetoric on trade ban and tax incentives to US companies pushed the dollar index above the 100 level last year.
Equally shocking for the forex market were the Modi government’s demonetisation drive last November that sent 86 per cent of the currency notes out of circulation.
These events dragged the rupee to an all-time low of 68.86.
But the dollar rally fizzled out soon enough. Markets globally realised that it would be difficult for the Trump administration to get through major reforms such as healthcare plan without support from the Democrats.
In 2017, the dollar index slipped 9.5 per cent. Recent economic releases, sans one-off disturbance in jobs data due to Hurricane Harvey and Hurricane Irma have put the US economy on a strong footing.
US GDP growth has been revised to 3 per cent for the June quarter, the highest in two years. US Fed has begun trimming its balance sheet, but there are doubts over the US Fed inflation target in the world’s largest country.
In contrast, India’s GDP growth rate slowed to 5.7 per cent due to destocking ahead of GST rollout and cash ban. Some states have announced farm loan waivers, while there are rumours that the government was planning Rs 50,000 crore fiscal stimulus; factors that threaten the government’s fiscal targets.
“The central government is contemplating a deviation from Budget targets, which could result in fiscal slippages. While the momentum in the domestic demand remains weak, the slowdown in growth could be attributed partly to a temporary disruption in economic activity on account of the structural reforms undertaken, including GST implementation, demonetisation and corporate deleveraging, which are prerequisites for a stronger medium-term growth outlook for the economy,” global brokerage UBS said in a note.
Foreign money has flowed out of Indian assets over the past couple of months, which has also put the domestic currency under pressure.
The domestic currency now trades at the 65 level, rising from near 69 level hit last November. Weakness in the dollar against a group of six global currencies amid doubt over US President Donald Trump’s tax reforms and US Federal Reserve’s inflation targeting helped the domestic currency gain in Samvat 2073.
But as the US central bank kicks off unwinding of its $4.5 trillion balance sheet and concerns loom over economic slowdown back home, analysts look divided on where the domestic currency is headed in Samvat 2074.
Analysts from 12 domestic brokerages polled in an ETMarkets survey expect the rupee to trade in the 65-63 range next year, while others see it depreciating to 67-68 level during this period. None of the analysts surveyed expected the currency to revisit the record low level of 68.86 hit in November 2016.
Rakesh Tarway, Research Head at Reliance Securities, believes visible hardening of yields across developed countries, widening domestic twin deficits and the government’s endeavour to promote exports are unlikely to power any meaningful appreciation in the rupee.
The rupee is still overvalued by 10-15 per cent in real effective exchange rate, says Tarway.
Vinod Nair, Head of Research at Geojit Financial Services, expects the domestic currency to hit the 67-68 range in the new Samvat year.
Jimeet Modi, CEO of Samco Securities, projects the 67-68 range for the rupee by next Diwali.
Other analysts remain positive on the local currency. Vaibhav Agrawal, Head of Research & ARQ, Angel Broking, expects the rupee to remain stable in the 63-65 range.
Pankaj Pandey of ICICI Securities has a similar view and sees the local currency in the 66.50-63.50 range with a bias towards appreciation.
Samvat 2073 began with a shock election win for Donald Trump in the US presidential election. His rhetoric on trade ban and tax incentives to US companies pushed the dollar index above the 100 level last year.
Equally shocking for the forex market were the Modi government’s demonetisation drive last November that sent 86 per cent of the currency notes out of circulation.
These events dragged the rupee to an all-time low of 68.86.
But the dollar rally fizzled out soon enough. Markets globally realised that it would be difficult for the Trump administration to get through major reforms such as healthcare plan without support from the Democrats.
In 2017, the dollar index slipped 9.5 per cent. Recent economic releases, sans one-off disturbance in jobs data due to Hurricane Harvey and Hurricane Irma have put the US economy on a strong footing.
US GDP growth has been revised to 3 per cent for the June quarter, the highest in two years. US Fed has begun trimming its balance sheet, but there are doubts over the US Fed inflation target in the world’s largest country.
In contrast, India’s GDP growth rate slowed to 5.7 per cent due to destocking ahead of GST rollout and cash ban. Some states have announced farm loan waivers, while there are rumours that the government was planning Rs 50,000 crore fiscal stimulus; factors that threaten the government’s fiscal targets.
“The central government is contemplating a deviation from Budget targets, which could result in fiscal slippages. While the momentum in the domestic demand remains weak, the slowdown in growth could be attributed partly to a temporary disruption in economic activity on account of the structural reforms undertaken, including GST implementation, demonetisation and corporate deleveraging, which are prerequisites for a stronger medium-term growth outlook for the economy,” global brokerage UBS said in a note.
Foreign money has flowed out of Indian assets over the past couple of months, which has also put the domestic currency under pressure.
