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Vivek Rajpal of Nomura tells CNBC-TV18 that the rupee will face resistance at 51.70 in the immediate short term.
On the upside, Rajpal says that the rupee could move to 49.70 per dollar within three months.
Below is an edited transcript of his interview with Mitali Mukherjee. Also watch the accompanying video.
Q: What exactly has been weighing on sentiment in the currency market and what kind of immediate targets are people talking about?
A: I think 51.70 is one of the important levels that market is watching. In terms of sentiment, a few things which are weighing on the market is lack of policy action on the government side.
Though the Budget looks credible arithmetically, we need to see some action on the policy side, we need to see petrol price hike, diesel price hike which kind of reduces the fiscal burden as we go ahead. These are the kind of things which market is watching and once these things come into action we may see reversal in the rupee.
Q: Since yesterday the one issue that’s been plaguing the equity markets mind is some of these GAAR changes. Have you seen any immediate impact of that in terms of liquidity dynamics in the money market?
A: No. There is nervousness because of the sentiment, but as such in terms of hard data we haven’t yet seen anything.
Q: With the downside risk of 51.70, what remains the upside potential for the rupee? What can it bounce back to because the deceleration has been very swift just like the appreciation was?
A: My sense is once it starts appreciating it will be a very smooth ride. We are viewing 49.70 as one of the levels three months down the line.
Q: In the immediate term what do you think it may be capped at?
A: 51.70 is a resistance that we think will be critical and we think market will hold that level. There is of course an assumption out there that oil prices will hold at current levels, there will be no spike in the oil prices, but we think over three months horizon or so we will see the appreciation in the rupee.
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