The rupee fell for the seventh straight day on Thursday to hit a fresh record low of 72.11. The Indian currency crossed the 72/dollar-mark for the first time ever.
The Indian currency has depreciated nearly 5 percent in the last one month and is down almost 13 percent so far in the year 2018. The 10-year govt bond yields expanded above 8 percent to touch its highest level since November 2014.
The 10-year G-Sec Yield in India has been inching up on fear of more rate hikes by the Reserve Bank of India (RBI). We have seen around Rs 2,700-crore outflow from the Indian debt market in September 2018 so far.
The Indian rupee after rising briefly fell again vs the US dollar to touch a new low above Rs 72/$. Apart from the rising crude prices, simmering trade tensions, weak local equity markets (reflecting FII selling), the broad strength in the US dollar (dollar index up about 0.5%) and weakness in the emerging market currencies also weighed on the Rupee.
Going by the current momentum, levels of 72.50 look likely in the next few days before the RBI signals its unease with the speed of the fall.
VK Vijayakumar Chief Investment Strategist at Geojit Financial Services
Companies with high foreign debt will be impacted by the increased debt servicing caused by falling rupee. If the companies that borrowed in the dollar are exporters who benefit from rupee depreciation, debt servicing won’t be an issue. But unfortunately, this is not the case.
Major exporters like the IT companies are zero debt companies. The real impact of dollar debt on companies would depend on whether the debt is hedged or not.
When rupee crashed during the taper tantrum of 2013 about 50 percent of the corporate debt was unhedged impacting the borrowers heavily. So, those who have hedged and those exporters with the built-in hedge will not be impacted. Others will suffer.
Uncontrolled Rupee fall is neither good for trade nor for sentiment. We expect RBI to use its comfortable reserves to support the rupee. RBI should come out and talk about reserves they have to stabilize the currency.
India’s Widening CAD & falling FPI flows adding to rupee weakness. The US Fed rate hikes in September and December may lead to current emerging market sell-off extending.
Akash Jain, Vice President – Equity Research, Ajcon Global
The rupee slumped and breached Rs72/$ level against the dollar for the first time ever on persistent demand for the US currency amid rising crude prices. We believe the Rupee could have been better managed by the regulators as the foreign exchange reserves position is comfortable.
With GDP going beyond 8 percent, the pressure on rupee should get reduced. We do not see rupee going down below Rs 73 soon.
Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers
The rupee continues to make a new record low on account of the crisis in the emerging market currencies. The further consistent rise in the crude oil prices and dollar index has kept sentiments bearish.
There are talks of rupee moving towards 72-73 levels hence there is a lot of speculative dollars buying in the market which is driving the currency lower every day. RBI intervention is very less despite the fact that forex reserves are around $400 billion.
There are talks of out-of-the-monetary-policy interest rate hike by the RBI and issuance of NRI bond issue to raise dollar money. However, at present the possibility of both the options is very low as the macroeconomic situation is much better than it was in 2013
Source – https://www.moneycontrol.com/news/business/markets/shocker-rupee-breaches-72-but-pain-may-not-be-over-analysts-2923861.html
Sanjiv Bhasin, EVP-Markets and Corporate Affairs at IIFL
The RBI is caught in the noise and letting the rupee have a freefall. With USD 400 billion of reserves, there should be some action to instill confidence. The market, on the other hand, has shown extreme resilience.
As such, it was very top-heavy earlier and this kind of a correction is inevitable. Amazon has hit USD 1 trillion market cap, and we could be looking at stories in India which will hit USD 100 billion next.
AK Prabhakar, Head of Research at IDBI Capital
Higher crude prices are one of the key reasons behind the rupee’s fall. Along with it, there are worries over fiscal deficit as well as a widening current account deficit (CAD).
Increase in government spending due to this being an election year is also weighing on sentiment. There are fears among participants of the currency hitting 75 per dollar as well.
Anindya Banerjee, Currency & Interest Rates Research Desk at Kotak Securities
Dollar-Rupee is being driven by an interplay of local and global factors. Locally, the norms enacted by SEBI on beneficial ownership of FPI funds by NRIs and also fear of tightening of norms for investments flowing non FATP compliant countries is causing distress amongst foreign investors.
Globally, weakness in EM currencies is being caused by the fear of fresh tariffs from the US on Chinese imports as well as high oil prices is leading to weakness in Rupee.
However, we expect the central bank to step into sell dollars to protect the Rupee. Over the near term, volatility can be high. A range of 71.00 to 72.50 is expected.
Abhishek Goenka, Founder, and CEO of IFA Global
Importers should cover on dips through call options even though the cost of the premium is high. Any interventions through RBI can reverse the Rupee between 71 to 73, so booking forwards could be tricky.
Exporters are advised to book only their confirmed orders through buying plain vanilla put options and wait for further bookings with the stop loss of 70.50 or one can book through range forwards structure protecting the range of 74 to 77.
Rahul Sharma, Senior Research Analyst at Equity99
The rupee touched the fresh record low of Rs 72/USD intraday against the US Dollar. With falling rupee and rising bond yield banking and NBFC stocks crashed heavily in last 3 days.
Midcap and small-cap stocks have crashed badly in last 3 days. Midcap 100 index crashed more than 1000 points from recent peak while small-cap index crashed more than 400 points in just 3 days from a recent peak.