Re can trade much lower; eyeing 47.20 by year end: Nomura

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According to Nomura's Craig Chan, the liquidity infusion from the ECB has significantly reduced credit risks and has eased the pressure on the rupee. "Therefore, I would say that dollar-INR can trade quite significantly lower from here," he said in an exclusive interview to CNBC-TV18.

Nomura expects the rupee to appreciate to 47.20 against the dollar by the end of the year.

Chan goes on to say that the euro-dollar could see some upside to 1.34 levels if the Greece bailout package comes through. "But due to fundamental issues at hand, I think we will trade quite significantly lower over the next three months," he said.

Below is an edited transcript of his interview with Latha Venkatesh and Sumaira Abidi. Also watch the accompanying video.

Q: Where would you see the euro in the event Greece gets its bailout package? Do you get 1.35 or thereabouts?

A: If we do see something coming through positively on the Greece side, confirmation of a package from the Finance Ministers, then I would say that euro-dollar upside is the most likely scenario. We will be looking for possibly up to even 1.34.

But beyond that, I think people start thinking back on the fundamental issues at hand. Nomura is looking for -0.7% growth this year in the Euro area. Beyond the recession risk, there is also significant political risk as well. So it's not that Greece getting its package resolves the whole situation. I think there are still significant issues beyond that of Greece, whether it's looking at Portugal, Spain or Italy. There is still a lot of core or even non-core Europe that's still at risk.

So I would say that 1.34 is most likely but then looking beyond this package, I think we will trade quite significantly lower over the next three months.

Q: Do you think that post the ECB's second tranche of the long-term refinance option, there could be another quantum leap in emerging market equities and currencies?

A: I think you made an extremely interesting point. Even though we are expecting some downside risks in euro-dollar post the Greek announcement, I would say that the environment is slightly different when you think about the rest of the emerging markets or even if you want to see riskier currencies.

The liquidity infusion from the ECB has significantly reduced credit related risk in the eurozone. When you combine that with growing expectations of the US economic recovery, even space for more policy ease whether it's coming from the ECB or even the US, then I think that the environment is definitely getting much more positive for riskier currencies.

It could be this divergence at play when you see Aussie dollar for example. It actually traded consistently higher through the year versus the euro-dollar which actually could be trading lower.

Q: How would you then be looking at the Indian rupee after the whipsawing movements that we have seen over the past six months?

A: At the end of last year, we had expected a shock to come through with respect to deleveraging in Europe. That shock risk has been reduced significantly on the back of the ECB's LTRO. With this, I think riskier markets could perform better.

If you think about some of the local policies that have been taken in India, from whether it's RBI or whether from the government in term of liberalizing the foreign direct investment, garnering more inflows from non-residents or external commercial borrowings, these measures have boosted confidence significantly.

So as far as we don't get the shock, then I would say that dollar-INR can trade quite significantly lower. In fact even though the market has rallied very significantly so far this year we are still looking for the dollar-INR to end this year probably around 47.20 levels. So a quite significant appreciation is still in place.