Now is great time to buy dollars: Mecklai

Jamal Mecklai, CEO, Mecklai Financial Services explains to CNBC-TV18 that the current situation, including the Prime Minister's assurance of addressing the problems in the economy, offered the best opportunity to buy dollars.

He adds that the rupee would not fall any lower as that entails the occurrence of two highly unlikely events, the dollar gaining further strength and the European crisis being resolved. Below is an edited transcript of his analysis on CNBC-TV18. Also watch the accompanying video.  Q: What do you make of this sharp movement? Do you think the demand is likely to be robust tomorrow? What can we expect from the gilt auction tomorrow?
A: I haven't really thought about it from that perspective. When the rupee was at 57, the cost of negative sentiment stood at Rs 5.50. Of this, about Rs 2 is due to the negativity created by the Budget over a period.
So if there is any change in the scenario, investors should get that money back. Now it appears that on the Prime Minister's affirmative assurance, especially regarding taxation, investors got that Rs 2 back immediately.
But I don't think there is going to be any further appreciation of the rupee in the immediate-term unless of course the dollar weakens or if Europe straightens up, which I don't anticipate. So I think this is great opportunity for people to buy dollars.
The other shadow on the horizon is the monsoon, which is not as expected. So, now that investors have received a gain of Rs 2 gain, they should buy. Q: Do you think the rupee could fall by anything lower?
A: Nobody knows for sure and you can't really put a number on sentiment. But according to my estimate regarding the rise in the rupee, about Rs 2 was due to domestic problems and about Rs 3 was due to global problems.
And the global problems don't seem to abate soon. So even if the domestic problems are completely fixed, you would still need money from outside. Globally, investors are terrified.
Europe is in a sort of wait-and-watch-and-hold pattern, with no resolution in sight. If whatever the EU puts together is okay, maybe they will climb over the current hurdle. But the fundamental problem has not been fixed. So I think that the Rs 3-4 spread is going to be there for a while. Q: Would the lack of any concrete initiatives, for instance, like a hike in diesel prices turn sentiment around?
A: The gain of Rs 2 could be easily lost. But for the rupee to go beyond 57, I think there would have to be a considerable increase in dollar strength overseas and a further deterioration of the global situation.
I can't imagine any further deterioration in the domestic situation. But that's possible and the level of 57 could break. But that would entail momentous events to occur. Q: Do you think the market has already priced-in the USD 5 billion that would flow in as a result of the gilt auction?
A: I think so. There is a current account deficit which with oil prices down, hopefully, will be a little better. So I think this year is not going to be as bad as last year. I think the chances are as long as Europe does not explode the rupee may return to 57-58.