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Informist, Tuesday, Nov. 5, 2024

 

By Pratiksha

 

NEW DELHI – After depreciating 0.3% in October, the rupee is expected to end this month broadly unchanged against the dollar, as the Reserve Bank of India's stranglehold on the currency may counter the impact of foreign portfolio outflows from domestic markets. According to the median forecast of 13 respondents from banks, corporates, and brokerage firms polled by Informist, the Indian currency is expected to end the month at 84.10 a dollar, not too far from October's close of 84.0750 a dollar.

 

Foreign portfolio investors have been actively pulling out funds from domestic markets amid uncertainty over the outcome of the US presidential elections on Tuesday, and the US Federal Reserve's rate cut outlook. Money has also moved to China after the world's second-largest economy announced a slew of stimulus measures to support faltering growth. 

 

In October, foreign portfolio investors withdrew over $11 billion on a net basis from India. This is the largest monthly figure since March 2020, when the COVID-19 pandemic really hit India. Market participants expect this trend to continue this month as well, and more strongly if Republican candidate and former president Donald Trump emerges victorious in the US presidential election. 

 

Historically, FPIs have been reluctant in investing in Indian assets when Trump becomes US president. After being net buyers in the run-up to the 2016 election, FPIs sold $9.8 billion worth of Indian debt and equity in Nov-Dec after Trump secured his win, according to National Securities Depository Ltd. 

 

"This pullback (by FPIs) reflects concerns that Indian equities may be overvalued compared to global peers. In the near term, FII outflows could persist, especially with the upcoming US presidential election, as investors may see it as a potential risk and hold off until a clear winner emerges and policies become more defined," Amit Pabari, managing director at CR Forex, said. 

 

Investors anticipate that Trump coming to power would mean lower corporate taxes, stricter trade relations, leading to higher stock prices and bond yields, strengthening the dollar. Trump's win is also expected to bring about strict restrictions on immigration and hikes in tariffs on imports, leading to stagflation in the economy, while Democratic candidate and Vice-President Kamala Harris coming to power would lead to policy continuity. As per opinion polls, Harris and Trump remain virtually neck-and-neck in the race to become the US president.

 

"Everything depends on how the US election takes place. Either way, there will be pressure on the rupee, but it will be calibrated if Harris wins. If Trump wins, then there may be an abrupt reaction in the rupee. Basically, more depreciation (in the rupee) if Trump comes to power," Ritesh Bhusari, deputy treasury head at South Indian Bank, said. 

 

Apart from the US elections, market players are also waiting for the outcome of the Federal Open Market Committee's November meeting, due on Thursday, where the US central bank is widely expected to go with a modest 25-basis-point rate cut. Most participants will watch out for further cues on the Fed's easing cycle. 

 

Currency traders are confident that the Reserve Bank of India will continue to protect the Indian currency from sharp depreciation, no matter who the winner in the US elections is. They pointed out that despite large foreign fund outflows in October, the Indian unit remained the second-best performer among its emerging market peers, all thanks to the RBI. Of the 13 poll respondents, only two expect the Indian unit to fall below 84.25 per dollar this month.

 

"RBI's routine interventions by selling dollars have helped the rupee avert sharp declines despite equity outflows in the past few weeks. This current strategy by the RBI is prudent and is likely to persist further. The RBI is well-equipped to deal with a potential sudden outflow of foreign funds and manage the rupee's fall if Trump wins," said Gaurav Sharma, head of equity, commodity, and currency research at Globe Capital Market. India's foreign exchange reserves have fallen over $20 billion since September, and were at $684.81 in the week ended Oct. 25.

A silver lining for the domestic unit will be the multiple initial public offerings of domestic companies lined up this month, including the much-awaited IPO of Swiggy Ltd., which opens on Wednesday. The food delivery major aims to raise almost $1.3 billion. 

 

While multiple big-ticket events this month may cause some volatility in the exchange rate, market players are still counting on the central bank to keep things under control. 

 

POLL DETAILS

 

Participant	November-end	December-end
CR Forex	83.90-84.20	83.80-84.20
CSB Bank	84.25	84.00
DCB Bank	83.90-84.25	-
Finrex Treasury Advisors LLP	84.25	84.40
Globe Capital Market	83.85-84.35	83.65-84.45
HDFC Bank	84.10-84.25	84.00-84.30
HDFC Securities	84.20	84.30
ICBC	84.25-84.50	-
IDFC FIRST Bank	84.00	84.00
Karur Vysaya Bank	84.05	-
Kotak Mahindra Bank	84.25	84.25
Large brokerage firm	83.85-84.20	83.70-84.35
South Indian Bank	84.00-84.10	-
Median	84.10	84.05

 

End

 

US$1 = INR 84.10

 

Edited by Avishek Dutta

 

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