Govt must support Re with on-ground execution: Axis Bank

Ashok Gautam of Axis Bank explains to CNBC-TV18 that the government must execute the measures that it has announced to support the rupee which will aid control inflation, reduce the current account deficit and improve the balance-of-payments.

Below is an edited transcript of the analysis on CNBC-TV18 Q: What do make of the pressure on the dollar-rupee of late and where do you see the next support level kick in now?
A: On Monday, the rupee touched a critical level of at 54.20 and it was observed in the market that some of the shorts that were built up at that level were taken on the back of oil-related as well as gold related buying. So, these were the two factors which pushed rupee beyond the level of 54.20 on  Monday.
Post that, the level of 54.60 where the rupee actually closed on Monday is a very, very critical level. If on a day-close basis, the rupee actually closing above this level, then there is certainly room for the rupee to move up to 55.20. Q: Can you indicate the range that you would be possibly working with on the rupee going into the year-end?
A: Let me give you a little perspective on that optimistic data. The government issued a slew of announcements which triggered the rupee to move from 57 to 51.30. But certainly those moves actually will have to be backed up by the real flow in the market. There have been some flows in September and October - Sebi data has indicated that there were inflows to equity and debt.
But the flows from FDIs have been rather muted. The last record for the flow of FDI was USD 8 billion in April which compares very badly against a flow of USD 20 billion in the same period last year. So, essentially the rupee movement will depend on the inflows into the market.
Now the current account deficit continues to remain though there is widespread opinion that it will hover around 4 percent. Though the slowdown in exports as well as imports is insignificant, the balance of payment situation is not very, very encouraging. All these factors will continue to point towards weakening of the rupee.
I am hoping that some of the administrative measures will be backed by the legislative measures when Parliament meets for the winter session which will open up the gates for the FDI flows to come in because India continues to be a growth story and I am very optimistic about India.
So, to give you a range for December- let us put it this way – the level of 55.20 seems to me toppish, but if that level is taken then probably the next level I am looking at is 55.80. If the flow starts improving, then certainly the rupee will again move towards 54 or still better, towards 53. This is the range which I am looking at till December. Q: A lot of the currency movement is predicated on the US elections on Wednesday. In case, there is a further rallying of the Dollar Index itself, do you think the rupee could breach this 55.80-level?
A: That possibility remains. We must see that a very critical level of 80.60 has been breached on the Dollar Index chart. Now the level which we have been tracking for sometime indicates that the Dollar Index is poised to move towards 81.6 or may be 82-   the last highs which were recorded.
It might go even up and that is going to point towards weakening of the rupee. But many times, the movement of the rupee is delinked with that of the  dollar because rupee's mobility also depends on real flows.
Not only that, the Dollar Index will actually impact the  rupee apart from the domestic factors. But I am only hoping that, going forward, sufficient measures will be taken to attract FDIs and dollar inflows into the market which will help take the rupee back to may be 52-53. We must remember that a strong rupee will help fight inflation as oil imports continue to be a major contributor to the current account deficit and balance of payments. Q: How are we compared in terms of beta or volatility as compared to Asian markets as well as emerging market currencies at this point?
A: This is a question which requires to be debated upon. The net open position for banks has been curtailed and corporates do not have the ability to speculate- get in and out of the market. So the depth in the market has actually has gone off and will cause significant changes in the currency even on very small inflows. We will have to live with this kind of volatility for some time to come.