Even though the Indian rupee has inched up below 60 levels, with the last closing figure being 59.91/92, traders and analysts are of the opinion that the currency may not strengthen further to below 59.
The rupee also breached the 60-per-dollar mark for the first time in eight months, prompting the central bank to put up some stiff resistance. Dealers said the central bank was seen buying dollars intermittently last week to stem rupee slide and shore up its foreign exchange reserves which have risen to $298.64 billion as on March 21, its highest since December 2011.
While the influx of higher capital inflows has been supporting the rupee, most economists see the Reserve Bank of India (RBI) stepping in to stabilise and possibly restrict the appreciation of the rupee.
Dun & Bradstreet feels that the RBI will take more structural measures to stabilise the rupee. "RBI will intervene if rupee gains beyond 59/$. RBI will not allow the rupee to go below levels of 59.50/$," Dun & Bradstreet said.
Dun & Bradstreet admits that the rupee is 'currently under-valued and it 'must trade at 55/$ levels.' Dun & Bradstreet also warned that the rupee might start depreciating on the back of uncertainties.
Echoing a similar sentiment, Ramesh Singh, Treasurer at Central Bank of IndiaBSE -0.30 % said, "Higher inflows from foreign investors have been supporting the rupee." "Once the current euphoria on hopes of a new government gets over and markets get stabilized, we may see some fall in the rupee," Singh added.
Rajat Rajgarhia, MD-Institutional Equities at Motilal OswalBSE 1.03 % Securities predicts that the rupee may see phases of over-valuation. "At least for the last six months we have seen the range of 61 to 62 holding on very well. Yes, these are periods when you see emerging market currencies across the globe gaining some ground. The emerging market flows themselves have become positive now."
"Currencies rarely trade at fair value. They either trade above or lower than that. Currency traded above fair value for a long time because of which it reacted the way it reacted last year," Rajgarhia said. "The kind of events which are sequencing up now, do not be surprised if the currency again starts seeing some phases of overvaluation," he added.
Rajgarhia, however, feels that the RBI management has demonstrated that they believe in stability of currency. "RBI will let the rupee be at current levels and try to build more reserves on account of that."
The rupee rose 3.15 percent in the March quarter, its best quarter since the 4.96 percent rise in the September quarter of 2012. On the month, the unit gained 3.1 percent, its best month since September 2013.
The decline in the rupee, which was a tailwind for IT and pharma, has now become a headwind for the sectors. How serious does this headwind look?
"Obviously, from 62 if the currency goes to 58 you will see some headwinds coming in and that is what the stock prices are reflecting," says Hiren Ved, Director & CIO, Alchemy Capital Management.
"It is very difficult to say whether the rupee will overshoot. If it overshoots and goes beyond 58 to 56 or 55, then you could see a situation where you could see flat earnings growth for one year until things catch up again."
"... But the markets are forward-looking; so, as I said, if it is up to 58 I see no big risk. If it goes from 58 to 55, may be you could see an earnings risk in IT companies," he adds.
This article taken from Economic Times : http://economictimes.indiatimes.com...-strengthen-below-59/articleshow/33013564.cms
The rupee also breached the 60-per-dollar mark for the first time in eight months, prompting the central bank to put up some stiff resistance. Dealers said the central bank was seen buying dollars intermittently last week to stem rupee slide and shore up its foreign exchange reserves which have risen to $298.64 billion as on March 21, its highest since December 2011.
While the influx of higher capital inflows has been supporting the rupee, most economists see the Reserve Bank of India (RBI) stepping in to stabilise and possibly restrict the appreciation of the rupee.
Dun & Bradstreet feels that the RBI will take more structural measures to stabilise the rupee. "RBI will intervene if rupee gains beyond 59/$. RBI will not allow the rupee to go below levels of 59.50/$," Dun & Bradstreet said.
Dun & Bradstreet admits that the rupee is 'currently under-valued and it 'must trade at 55/$ levels.' Dun & Bradstreet also warned that the rupee might start depreciating on the back of uncertainties.
Echoing a similar sentiment, Ramesh Singh, Treasurer at Central Bank of IndiaBSE -0.30 % said, "Higher inflows from foreign investors have been supporting the rupee." "Once the current euphoria on hopes of a new government gets over and markets get stabilized, we may see some fall in the rupee," Singh added.
Rajat Rajgarhia, MD-Institutional Equities at Motilal OswalBSE 1.03 % Securities predicts that the rupee may see phases of over-valuation. "At least for the last six months we have seen the range of 61 to 62 holding on very well. Yes, these are periods when you see emerging market currencies across the globe gaining some ground. The emerging market flows themselves have become positive now."
"Currencies rarely trade at fair value. They either trade above or lower than that. Currency traded above fair value for a long time because of which it reacted the way it reacted last year," Rajgarhia said. "The kind of events which are sequencing up now, do not be surprised if the currency again starts seeing some phases of overvaluation," he added.
Rajgarhia, however, feels that the RBI management has demonstrated that they believe in stability of currency. "RBI will let the rupee be at current levels and try to build more reserves on account of that."
The rupee rose 3.15 percent in the March quarter, its best quarter since the 4.96 percent rise in the September quarter of 2012. On the month, the unit gained 3.1 percent, its best month since September 2013.
The decline in the rupee, which was a tailwind for IT and pharma, has now become a headwind for the sectors. How serious does this headwind look?
"Obviously, from 62 if the currency goes to 58 you will see some headwinds coming in and that is what the stock prices are reflecting," says Hiren Ved, Director & CIO, Alchemy Capital Management.
"It is very difficult to say whether the rupee will overshoot. If it overshoots and goes beyond 58 to 56 or 55, then you could see a situation where you could see flat earnings growth for one year until things catch up again."
"... But the markets are forward-looking; so, as I said, if it is up to 58 I see no big risk. If it goes from 58 to 55, may be you could see an earnings risk in IT companies," he adds.
This article taken from Economic Times : http://economictimes.indiatimes.com...-strengthen-below-59/articleshow/33013564.cms