Rupee unlikely to retest 57 in near-term: HSBC India

Also read: 53-54/$ is fair value zone for rupee, says Nomura India

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying video.

Q: What triggered that big move yesterday?

A: I think various factors came together to trigger a move that actually started late last week. One was the development on the European situation. I think expectations from the European meeting were extremely low going by past performance criteria. The positive surprise clearly added an element of risk-on to the market. That can actually be seen by the fact that the euro has hardly retraced from levels we saw immediately after those developments happened. So, it has been a slightly sustaining risk-on.

I think Europe, for the moment, is a problem, but with slightly better sentiment than what we have had. That has been one slightly lasting for the time being improvement in risk sentiment. Apart from that, there was a feel good with comments coming out from the Prime Minister and the PMO, some expectation that there would be some action.

Q: Did you see actual flows yesterday? Did you see debt flows or equity flows?

A: Clearly, there has been FII money that has come in over the last couple of days. I think the SEBI released data yesterday shows that close to USD 600 million flowed into equity markets and about a USD 150 million flowed into debt markets. So, clearly there has been some FII money that came in.

I would think there would have been a lot of long dollar-rupee positions, both offshore as well as onshore, which would have got probably cut out as well. So, it would have all added up. To some extent, it was a reversal of the extremely negative sentiment that was there on account of overseas and domestic factors.

Q: In your opinion, what sort of range do you think we are working with for the rupee now in the near-term?

A: It’s quite tough to say because a lot of this move is based on sentiment and expectation along with some flows that have also come. Technically, I am looking at this 54.30-54.50 window as an immediate support; 54.30 was the intraday high that we saw last year. We did not really go above that level till May this year. So, we are almost back down there.

On a more fundamental level, apart from expectation that there will be some action on the policy side, I would continue to look at all the factors that would affect your core current account deficit. A little bit of concern is that Brent is back up to USD 100 per barrel after having been at USD 90 per barrel. So that is definitely slightly a little bit of a negative.

Q: Do you think that we can take out 57 again more decisively? Do you think there is a possibility that we could make a fresh record low for the rupee or you’ll rule that out at this point?

A: If you are talking about the short-term now, it’s extremely unlikely that we’ll take out 57. On a medium-term basis, one needs to continue to watch all the factors that were extremely negative a short time back, developments in Europe and developments domestically because currently there is expectation. That needs to be delivered. Otherwise, at some point in time, the market loses that expectation.