Expect rupee to reach 53/USD by end of Q1: HSBC

Some of the traction seen in the reform process over the last few weeks has aided the rupee and the rupee went below 54.

Dominic Bunning of HSBC in an interview to CNBC-TV18 says currency may continue to make gains and expects rupee to appreciation. “We can certainly see dollar-rupee trade lower. We have got end of Q1 target of around 53 for dollar-rupee. We do still see some more appreciation for the rupee from here,” he asserts. Below is the edited transcript of his interview on CNBC-TV18 Q: What exactly is your view with regards to the rupee which has pretty much been in this range of around 54-55 for six weeks and finally broken out of that, how optimistic would you be on the rupee going forward in terms of further appreciation? A: The view on the rupee has been very much predicated on the reform atmosphere onshore. Clearly, since the start of the New Year, we have seen reform process gain a little bit more traction and that should see the currency continue to make some gains. Although there is still a lot to be done from a policy perspective in order to limit the current account deficit and limit the fiscal deficit as well. At least some of the actions that we have seen in last few weeks do give us a bit more traction going forward. Therefore, if this continues, we can certainly see dollar-rupee trade lower. We have got end of Q1 target of around 53 for dollar-rupee. We do see some more appreciation for the rupee from here. Q: How are you reading the moves from the government? There are mixed reactions some believing that this small dose of a fuel price hike will be carried out every month or maybe every fortnight for the next 10-20 fortnights. Others believe that somewhere down the road, the government will lose its nerve which it did in the case of other fuels other than diesel, how are you reading this move at all, is it seen as a big brave reform move? A: We need to be a little bit careful with regards to calling this as a huge game changer for the subsidy programme, for the currency as well. Certainly, it is a positive incremental step and that is why for the time being, we do remain more positive on the rupee but we are very much cognisant of the fact that there could be political issues that stops some of these reforms going forward. We are looking forward to the Budget and so on and so forth, and trying to see if these reforms do become more baked in. Besides these being early days, and the action we have seen from the rupee in the last few sessions, has been something of a short-term reaction to the news. Whether we can continue to go stronger for the currency, in a more medium-term perspective will definitely depend on how much traction we do continue to see with these reforms going forward. Q: Today itself what has been the mood on the trading flows, have you seen big institutional investors coming in and supplying dollars to come in and buy Indian shares or even do you see a tendency to go at least long the rupee in the non-deliverable forward (NDF) market? A: In terms of direct trade recommendations, we put out a short sterling long India rupee trade recommendation yesterday, on the back of the fact that some of these reforms were gaining more traction. Obviously that trade has performed to some extent over the last couple of sessions and we are very happy with that and that sort of also backs up our overall bearish view on sterling so that is why we are going to short sterling versus the rupee. Q: You had mentioned 53 on the rupee, do you expect that level to sustain or what sort of trajectory do you expect to see in 2013 in possibly a worse case scenario hence breaching record lows of 57 or a positive scenario as far as possibly appreciating beyond 53, what would your range for the rupee be? A: I think over the whole year, we do expect the currency to continue to gradually appreciate until these reforms continue. We also think we can head down almost towards the 50 area on the strong side. However, if the reforms do take a turn for the worse, and do not gain as much traction then it wouldn’t necessarily take a lot force to push back up towards 56 area against the dollar. That is where we saw a fair amount of resistance through the second half of 2012. So between 50 and 56 area should be a sort of sensible range from our perspective.