Fundamentals to keep rupee stable trump over global factors

New Delhi, Nov 13 (IANS) Strong domestic fundamentals are expected to keep the Indian rupee relatively stable in the near term, despite global political and economic uncertainties which have engulfed other peer currencies.

“Rupee has emerged as a low beta asset amongst the major Asian currencies, exhibiting relative stability,” Bansi Madhavani, Analyst at India Ratings and Research, told IANS.

“This resilience is likely to continue going forward, keeping it anchored on account of domestic fundamentals.”

However, the surprise victory of Republican Donald Trump in Tuesday night’s US Presidential election, along with a sudden move by the Indian government to demonetise Rs 500 and Rs 1,000 currency notes did take a toll on the rupee.

The massive political and economic changes plunged the country’s stock markets by over 1.5 per cent for the week ended November 11, and depreciated the currency by 56 paise to 67.26 against a US dollar from last week’s close of 66.70 to a greenback.

While Trump’s victory bumped up the dollar index and pushed up the US bond yields, it also drained foreign liquidity from emerging markets such as India.

The provisional figures from the stock exchanges showed an outflow of Rs 3,923.92 crore in foreign funds.

Figures from the National Securities Depository (NSDL) disclosed that foreign portfolio investors (FPIs) were net sellers of equities worth Rs 1,670.71 crore, or $250.47 million from November 7-11.

According to experts, the Reserve Bank of India is expected to anchor the currency through its interventions, as risk aversion sentiment and Foreign Currency Non Resident (FCNR) payments will keep the rupee under pressure.

“We expect RBI (Reserve Bank of India) intervention to continue over the remainder of November,” Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, told IANS.

“Once bulk of the FCNR (Foreign Currency Non Resident) payments end by November, we can expect a more hands-off approach from the central bank.”

Additionally, the heightened chances of a rate hike in the US under the new US administration and fears over its protectionist measures can further dent the Indian equities and currency.

“If the USD/INR pair in the futures market breaks the 67.57 level, then it can move up to 68 mark,” Astha Jain, Senior Research Analyst at Hem Securities, told IANS.

“Though the domestic fundamentals are strong, they may not be sufficient enough to prevent global cues from weakening rupee.”

(Rohit Vaid can be contacted at <>)