Will see debt funds liquidating; funds moving out: DBS Bank

Arvind Narayanan, head of sales, treasury & markets in DBS Bank, says that rupee weakness will linger for a while, as the underlying trend continues to be extremely weak.

Talking to CNBC-TV18, he says anybody who has invested in India’s debt funds now would look at the rates available on US treasuries now, which are so much more attractive .

So from a sheer risk-reward perspective investing, in the US markets, wherein the dollar rates have gone up, looks definitely more impressive and more attractive than a rupee investment.

So, from a sheer relative value basis we will see debt funds liquidating and moving funds out, he says. 

Here is the edited transcript of his interview with CNBC-TV18

Q: Earlier you said that 58 is coming and it has come right now. What led to this accelerated pressure in late trade and how are you approaching the rupee now?

A: My sense is the underlying trend continues to be extremely weak. I don't think we have seen any support coming either from the government or from the markets to support the rupee and all the flows seem to indicate that this weakness will persist for a while.

It is not restricted only to the rupee. If you see broadly across the region in Asia most currencies are weakening against the US dollar. So I would image that trend would continue for a while more. Looking at the strength and brutality of this move I will not be surprised if we see this level being extended.

Q: Just to concentrate on this afternoon’s fall what would you attribute this afternoon’s fall for the INR in such aggravation specifically in the past one hour?

A: The statements coming from the government have also not been very positive or in support. So if you see even the yields have shot up. You have seen the levels have also come down and by and large any investor sitting offshore will think twice about brining in money at these levels into the Indian markets.

At the same time money sitting in India is also finding its way out because the worry is definitely that this liquidity kind of tapering or possibility of tapering it is better to take money out of the markets now than wait for a suitable time. So I guess that momentum has just built in and that is something you will see continuing some more.

Q: What are you noticing in terms of redemptions at this point?

A: This is something we spoke in the morning as well. Essentially anybody who has invested in the India debt fund now would actually look at the US treasuries and the rates available on US treasuries now is so much more attractive than rupee yield swap into US dollar.

So from a sheer risk-reward perspective investing in the US markets where in the dollar rates have gone up looks definitely more impressive and more attractive than a rupee investment hedged back in the US dollars. So from a sheer relative value basis we will see debt funds liquidating and moving funds out.

Q: A word on emerging market currencies as compared to the Indian rupee. For today’s trade are we seeing the same amount of volatility or the same amount of rapid depreciation on different currencies such as the real etc, or is it just the INR which is in such a bad spiral?

A: May be the Japanese yen and Taiwanese dollar, most currencies across emerging markets are facing broad dollar strength. So that has been the underlying strength and will continue to be so.