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Rupee opens lower, may depreciate further on strong dollar, elevated crude prices and risk aversion in markets

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Rupee depreciated on Monday as it opened 24 paise lower at 81.58 per dollar amid rising crude prices, risk aversion in equity markets, strong dollar and weak Asian peers. In the previous session, rupee extended its initial gains and settled 37 paise higher at 81.36 against US dollar, after the Reserve Bank of India raised the benchmark lending rate by 50 basis points. At the interbank forex market, the local unit opened at 81.60 against the greenback, and ended at 81.36, up 37 paise from its previous close. Rupee has fallen to around Rs 81.50 from roughly Rs 73.21 a year ago, a decline of about 9.5%. In other words, over the past 12 months, the US dollar has appreciated 9.5% against the Indian rupee.

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“Rupee retraced from its all-time lows after the RBI raised rates by 50bps, the fourth straight increase, as policymakers extended their battle to tame stubbornly high inflation. The RBI has now raised rates by a total 190 basis points since its first unscheduled mid-meeting hike in May. The U.S. Federal Reserve’s relentless and aggressive rate hikes over recent months to curb inflation have battered the rupee, and most other emerging and developed market currencies. The MPC lowered its GDP growth projection for financial year 2023 to 7% from 7.2% earlier, while its retail inflation forecast was held steady at 6.7%.”

“Data released on Friday showed FX reserves fell to $537.52 billion in the week through Sept. 23, notching their steepest weekly fall in six months. The RBI governor in his commentary mentioned that about 67% of the drop in reserves during the current financial year was due to valuation changes as the U.S. dollar strengthened. Today, focus will be on the ISM manufacturing number that will be released from the US; better-than-expected data could extend gains for the dollar. We expect the USDINR(Spot) to trade sideways and quote in the range of 81.20 and 81.80.”

Anuj Choudhary – Research Analyst at Sharekhan by BNP Paribas

“Indian rupee appreciated by 0.42% on Friday on sharp rise in domestic equity markets as RBI hiked repo rate by 50 bps to 5.9%. Rupee also appreciated on reports that the central bank is encouraging state-run refiners to reduce dollar buying and has been asked to lean on a special credit line. India’s current account deficit rose to $23.9 billion in Q1 FY23. Though it is higher than $13.4 billion in the previous quarter, it was much better than estimates of $30.5 billion. Weak US Dollar also supported Rupee. Dollar index is trading 111.848 (-0.36%).”

“We expect Rupee to trade with a positive bias on jump in domestic equities and rise in risk appetite in European markets. Weak US Dollar and overall weak tone in crude oil prices may also support Rupee. However, concerns over global economic recovery may cap sharp upside. Investors may also remain cautious ahead of Core PCE Price Index, Personal Income and Chicago PMI from US. USDINR spot price is expected to trade in a range of Rs 80.30 to Rs 82.50 in next couple of sessions.”

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Amit Pabari, MD, CR Forex Advisors

“The impact of RBI policy on the Rupee remained muted as RBI didn’t surprise any new tool for liquidity or borrowing. However, in the final hour of the interbank trading, RBI surprisingly asked state-run refiners (IOCL, HPCL, BPCL) to lean on the $9 bln credit line instead of the spot market for dollars. This resulted in a sharp appreciation in Rupee from 81.50 to 81.15, but weekly, monthly, quarterly and financial half-yearly closing resulted in a strong dollar demand, which took it back to 81.45. Overall, we expect the USDINR pair to remain well supported near 81-81.20 levels. On the flip side, 82 will act as a crucial resistance. If that is taken out then we could see a sharp jump towards 83 in a short span of time.”

(The recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

Will Sensex, Nifty repeat Nov rally this month? Share market at all-time high; rebalance portfolio | INTERVIEW

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With BSE Sensex and Nifty 50 riding at all-time high levels, investors have an opportunity to get out of the stocks with weak fundamentals and invest in companies of high quality, said Hiren Ved — Director, CEO and CIO, Alchemy Capital Management. In an interaction with Surbhi Jain of Financial Express Online, Ved said that investors put in a lot of effort to time the market, which in his opinion should be utilised for identifying companies with strong fundamentals. For the upcoming initial public offers, Ved advised investors to evaluate each company on its merit rather than investing for short-term listing gains. Here are edited excerpts from the interview.

Equities are at all-time highs, should investors rebalance their portfolio?

Over half a dozen companies plan to launch IPO this month, what should be investors’ strategy?

In a bull market, there tends to be a frenzy for IPOs as the stock can give handsome returns on the day of listing itself. Our advice to investors would be to evaluate each company on its merit rather than just invest in an IPO for short-term listing gains.

What are your underweight and overweight sectors?

In the current environment, we are balanced across domestically correlated sectors like Financials, Consumer Discretionary and Autos but we also have exposure to global facing sectors like Pharma and IT. We are underweight on metals and commodity oriented sectors as we don’t invest in them but we expect these sectors to do well in short to medium term.

Post auto sales number for November, what trends do you see?

 Passenger vehicles and two-wheelers have been doing well ever since the economy started opening up due to increased demand for personal mobility. However, what is heartening is that we are seeing some signs of recovery in the commercial vehicles segment. This is important as MHCV sales are a good barometer of underlying economic activity.

With so much developments on COVID-19 vaccine, is it time to hold pharma stocks?

What one needs to appreciate is that Pharma by nature is a counter cyclical industry. The Pharma companies in India cater to a large domestic market of USD20bn+. They also have a large presence in the USD60bn+ generic market in the US. In fact in volume terms Indian companies cater to 40% of the US generic market. A few Indian pharma companies also have good exposure to Europe as well as emerging markets such as Brazil, Russia & China. Many large pharma companies are in the process of transitioning from pure generic plays to Speciality plays in the important generic market of the US. For this leading Indian generic pharma companies have invested a lot in research & development at around 8-10% of sales in the last 5 years. Along with it one has a large domestic market which tends to grow at 10% pa.

Another great opportunity for Indian Pharma companies is in the Global (Custom Development & Manufacturing) CDMO space. The CDMO market is expected to be USD 158bn by 2025 from USD 100bn in 2019 and is estimated to grow at 7%, with certain sub-segments such as biologics expected to continue growing in the low teens. To summarize, pharma is an industry with a steady base demand and lots of avenues for growth as far as leading Indian pharma companies are concerned.

Sensex, Nifty rallied 12% in November, what do you expect from Indian share market in December?

In November, we saw that FIIs pumped in US$8bn in Indian equities. This is the highest ever flow which India has received in a month and largely explains the rally which we saw in November. In fact, the Nifty is up 80% from the lows which we saw in March. After such a sharp rally, it is quite possible we could have a small correction. However, one should not be overly puttered by such intermittent correction although some correction in the short-term is very much possible. However, one should not miss the forest for the trees. Although nascent, there are some large macro shifts taking place both globally and in India. After a long time, we are seeing the dollar weakening, and the US current account deficit widening. Which bodes well for EM equities. If EMs do well, India will continue to get its share of passive flows. Moreover, it does seem that our country is at the cusp of a new growth cycle.

There is a clear impetus by the government on manufacturing, cost of capital has come down significantly and the health of the financial system looks far better than what it has been in the last five years. Notwithstanding the near-term gyrations, we continue to remain positive on markets from a medium to long term horizon.