See rupee stabilise at 59-62/$ in near-term: JPMorgan

Foreign institutional investors, going forward are likely to reduce their debt (bonds) selling compared to last month, says Brijen Puri, JPMorgan. However, if the global factors continue to remain the way they are and the fundamentals deteriorate from India perspective, then the selling may pick up again, he adds.

Also Read: Rupee to stay in 58-62/$ range now; CAD may dip: StanChart

Speaking to CNBC-TV18 after rupee breached 61/USD, he says "In the short-term, if we see some correction in global markets or some action from the Reserve Bank (RBI), they would not be as much worried about the rupee weakening, but the expectations building over it."
In the coming month, he does not expect the rupee to fall much below 59/USD and sees a short-term range of 59-62/USD. Below is the verbatim transcript of Brijen Puri's interview on CNBC-TV18 Q: What is happening in the market, is there actual buying or is the rupee going down on thin volumes?
A: We have the underlying volumes going through. We do assume oil companies are buying (dollars) on a daily basis. However, apart from the absolute basic we do see the volumes having thinned out a bit, people are bit skeptical being in uncharted territory as to what to make of the moves. People are hoping for some action from the authorities like the RBI. Q: From the pattern of dollar buying that you saw today, was it foreign institutional investors (FIIs) exiting equities or debt? Can you give some color to the demand today at all?
A: The demand has been mix so the data has been showing that there has been FII demand looking at redeeming some of their Indian investments. Apart from that, you have the usual suspects, you have the oil companies who are looking to cover their short-term liabilities at least. Q: Are you expecting any meaningful outflows from the FIIs in the equities or in the debt market? Any communication that could put further pressure on the rupee, something similar to what we saw two weeks back particularly FII outflows in the debt market, will that meaningfully pickup from here on given the data on Friday?
A: On the debt market front, we have seen material amount of rebalancing of portfolios. People who were expecting RBI to aggressively cut rates through the year, some of those bets have been taken off the table. So going forward, the debt FII selling should reduce a bit as compared to the pace that we have seen over the past month. But if the global factors continue to remain the way they are and the fundamentals deteriorate from India perspective, then they could pick up again but that is little bit out in time.
_PAGEBREAK_ Q: Are you expecting the Indian currency performance to be largely in line with the emerging market (EM) currency weakness? Is it likely to under perform given the current account stress?
A: Rather than comparing India against the broad EM basket, it will be better to compare it against the current account deficit (CAD) EM basket. There we would expect the rupee to trade in line with that basket, give or take some time in differences but broad trend should be similar. Q: What are you looking at in terms of bracket now, a range for the rupee from now till the end of year and a possible average?
A: It is a tough call but from a fundamental perspective, both global as well as Indian fundamentals, we don't see that changing materially. We could see some short-term corrections but the broad bias would remain higher.

In the short-term, if we see some correction in global markets or some action from the RBI given the reports the authorities seem to be worried about expectations getting unhedged, they would not be as much worried about the rupee weakening fundamentally but the expectations building it into a snowball. So that action could see short-term correction. However, in the coming month, I don't see rupee falling much below 59 so maybe short-term range of 59.62 is expected. Q: What is the house view, what is your team globally telling you about exit from EMs? Will you see greater divergence of EM performance and the US equities? How much can you pen in at all in the form of outflows from India or from EMs?
A: It is difficult to call, but from a Fed reaction function perspective we are looking at Fed starting its tapering in the September quarter and has been brought down between September and December. A couple of people on the street are also looking at an earlier start to the taper. While we may debate about the exact month and the timing, over the past couple of months some of that is already price in. So going forward, the impact should be marginal in the same direction. Q: What is the house view about the extent of tapering which will begin in September for example from USD 85 billion per month, what will it come down to in September if it goes through?
A: We are looking at around USD 15 billion increase.