Ru­pee May Breach 70 to a Dol­lar, But Beat EM Peers

The Economic Times - - Companies: Pursuit Of Profit -

Mum­bai: The ru­pee may weaken be­yond ₹ 70 to the US dol­lar by the end of the year, but out­per­form other emerg­ing mar­ket cur­ren­cies as In­dia re­mains the best sta­ble macroe­co­nomic story, an ET poll shows. Deutsche Bank, DBS Bank, Bank of Amer­ica, Yes Bank, IFA Global and Edel­weiss Fi­nan­cial Ser­vices are among those pre­dict­ing the lo­cal cur­rency to hit the 70-mark or fall be­yond it. Just two of the 18 mar­ket par­tic­i­pants polled ex­pect the ru­pee to fir m up from the cur­rent level (67.32 a dol­lar).

“The ru­pee is ex­pected to weaken, driven by a s t r o ng d o l l a r, ” s a i d I ndranil Sen­gupta, co-head of In­dia re­search at Bank of Amer­ica Mer­rill Lynch. “But, the lo­cal unit should still out­per­form most of the emerg­ing mar­ket cur­ren­cies as long as oil stays low, help­ing In­dia to gain on the cur­rent ac­count front.”

A cur­rent ac­count deficit or sur­plus is the gap be­tween the val­ues of im­ports and ex­ports. It was in a deficit of $300 mil­lion, or 0.1% of gross do­mes­tic prod­uct, in the April-June quar­ter last year, nar­row­ing from 1.2% a year ear­lier, ac­cord­ing to the lat­est avail­able data. Crude oil prices have been hov­er­ing be­tween $50 and $60 per bar­rel in the past few months. Though the prices are marginally higher than last year’s, they are still less than half f rom the peak eight-nine years ago and at a com­fort­able level for In­dia, a net oil im­porter. In­dia pays in dol­lars for crude and any rise in oil prices would in­crease the re­quire­ment for the green­back, in tur n weak­en­ing the ru­pee. Over­seas debt in­vestors in In­dia are ex­pected to earn about 4% in to­tal re­turns af­ter ad­just­ing for ex­pected spot ex­change rate, com­pared with China’s 1.21% and Brazil’s 0.53% in the fourth quar­ter of 2017, a B l o o mb e r g fore­cast showed at the close of Fri­day’s lo­cal mar­ket hours.

That means, In­dian as­sets show rel­a­tively higher re­turn po­ten­tial at a time when in­vestors are likely to exit emerg­ing mar­kets amid ex­pec­ta­tion of US rate hikes and the re­sul­tant strength to the dol­lar. In Fe­bru­ary, the dol­lar has al­ready gained nearly half a per­cent against a bas­ket of six ma­jor cur­ren­cies it is com­pared with.

A Bud­get aim­ing at growth via in­fra and ru­ral spend­ing may cap ru­pee’s value ero­sion

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