Growth, rupee tradeoff risk for mkt in medium-term: Experts

The continuous trade-off between growth and the rupee may stabilise the market in the short-term, but not in the medium-term, say NS Venkatesh, chief general manager, IDBI Bank and Arvind Sanger, managing partner, Geosphere Capital Management.

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Speaking to CNBC-TV18, the experts add that an indication of a slowdown in the proposed tapering of the QE programme by the Fed will be able to restore the rupee and other emerging-market currencies. Below is the edited transcript of the discussion on CNBC-TV18 Q: The rupee’s fall on Wednesday has not been in isolation. It followed a rout across currencies in emerging markets. What is your view? Sanger: To be honest, the rupee has gone fallen lower faster than anticipated. So, at this point it is hard to estimate a level. However, the minutes of the Fed meeting may offer some succor. If the minutes indicate a slower tapering of the Fed’s QE programme, it may provide some relief to fall in currency.
Barring that, the real challenge for the Reserve Bank of India (RBI) is to maintain the growth-rupee weakness balance. I don’t see anything that is going to drive a sharp fundamental rally in the rupee for sure. Q: Do you believe there will be a relief rally? Sanger: If it were that clear that the QE taper would not start in September, that would definitely help the Indian rupee and other global emerging-market currencies. There could be a relief rally only if the Fed is a bit more circumspect about how fast the QE will taper. Q: What is your call on Indian equities? Sanger: I think Indian equities have now started to follow the rupee. It has become a simple, linear relationship. The markets have had to bear the worst of both worlds —  when the Reserve Bank of India (RBI) tries to defend the rupee and abandons growth or when it tries to support growth. Again, a rupee rally will help the market in short-term. But in medium-term, I think the rupee-growth trade-off creates a huge risk for the markets. Q: What do you expect as far as the rupee is concerned? Venkatesh: I agree that the rupee has been under pressure for the last few weeks but action is being initiated both at the central-bank and the ministry level. Hopefully, this will start bearing fruit. Today's move was initiated by external factors like the FOMC minutes. I personally believe that the minutes will indicate that the tapering may not start at this particular point of time for the simple reason the US data shows no signs of being sustainable to allow the rollback of quantitative easing (QE).