The Indian currency is making history almost on a daily basis. It opened at a fresh record low of Rs 72.80 against the US Dollar on Wednesday, but according to analysts polled by Moneycontrol on Tuesday, the fall may not be over yet.
As many as 10 CEOs, HORs and currency experts polled soon after the rupee plunged to a record low on Tuesday said that they expect the S&P BSE Sensex to stay in the range of 38,000-40,000 while rupee could move in a range of Rs 72-75/USD in FY19.
As many as 50 percent of the respondents feel that rupee is likely to move in a range of Rs 72/USD on the higher side and Rs 75/USD on the lower side in FY19. A rise in value indicates depreciation in rupee.
However, 20 percent of the analysts feel that there is a higher probability of rupee going above Rs 75 against the USD and moving towards Rs 80/USD.
On YTD basis, the rupee has depreciated by about 14 percent against the USD while comparable currencies such as the Indonesian Rupiah and the Philippine Peso have depreciated 8.2 percent and 6.7 percent, respectively.
“Despite the recent weakness, the rupee still continues to remain overvalued in REER (Real Effective Exchange Rate) terms. Though the REER has corrected from 122 to 114 since January, a further 3-4% up move in USD/INR cannot be ruled out over the next 3-4 months if a panic in the EM markets continues,” Abhishek Goenka, founder, and CEO at India Forex Advisors said.
"Rupee could underperform its EM peers if crude prices remain elevated. Considering the base year as 2006, when the rupee was hovering around the 44-mark, if we consider average inflation differential between the US and India at 4.5%, the fair value of the rupee should be around Rs 75," he said.
India clocked a GDP rate of 8.2 percent for the quarter ended June, supported in part by the low base effect of the same quarter last year, leading to the expectation of a 7.6-7.7% GDP growth for FY19 is the sign of a strong economy.
But, concerns over twin deficits, thanks to rise in crude oil prices and bond yields, which touched 8.18 percent and widening of current account deficit, which touched 2.4 percent of the gross domestic product in April-June quarter, are leading to some nervousness.
A rise in current account deficit means that the country is importing more than what it is exporting which could lead to further pressure on the currency.
Almost 50 percent of the respondents feel that the macro situation has deteriorated and 80 percent of the analysts polled said that a rise in current account deficit could lead to further weakness in the currency.
Apart from domestic cues, a hike in rate by central bankers across the world could also strain macros. 100 percent of the market participants polled by Moneycontrol said that they expect a minimum 25 bps hike from the US Federal Reserve in its policy meet due later in September.
Meanwhile, 80 percent of the respondents feel that the Reserve Bank of India (RBI) could raise policy rates by 50 bps in its next policy meeting as against general consensus view of a status-quo.
“The probability of an interest rate hike by the RBI remains high in the wake of the recent weakness of the INR against the USD and the consequent impact that it may have on inflation,” Jayant Manglik, Religare Broking told Moneycontrol.
“Moreover, the central bank would clearly want to give out a signal to the market that it is taking the necessary steps to control any possible inflationary pressure build-up, which is necessary from the rupee depreciation point of view,” he said.
Manglik further added that the domestic economy is clearly displaying strength, RBI would find it lesser of a concern to raise rates while evaluating the inflation-growth trade-off.
Impact on markets:
A falling currency will keep equity markets under check but experts feel that the correction in Indian equity markets will be short-lived and we should be able to head higher and touch record highs.
Although the upside still remains capped due to macro issues at home and on the global front escalating concerns over trade war and rise in interest rates by the US Fed will keep upside under check.
As many as 44 percent of the respondents feel that Sensex is likely to hover in the range of 38,000 on the downside and 40,000 on the upside in FY19, while the rest 33 percent have a more bullish view and see the index hovering in the range of 40,000 to 42,000 in the same period.
“While we believe the upside in the near term is capped because of macro challenges but we do not see a significant downside as earnings growth for the current year are going to be robust,” Naveen Kulkarni, Head of Research, Reliance Securities told Moneycontrol.
“We expect strong earnings growth trajectory which started in 2HFY18 to sustain through FY19 and extend to FY20,” he said.
Commenting on the Nifty50 index, almost 60 percent of the respondents remain conservative in their view. They feel that Nifty50 is likely to hover in a range of 10,000 at the lower end of the range and 12000 at the higher end of the range in FY19.
The rest 30 percent felt that there is a possibility of a breakout above 12,000 which could take the index towards 14,000 while the rest 10 percent feel that bears will take control and push the Nifty50 below 10,000.
List of Analyst:
Ajay Bodke, CEO - PMS, Prabhudas Lilladher.
Gaurav Dua, Head of Research, Sharekhan by BNP Paribas
Mustafa Nadeem, CEO, Epic Research
Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in
A K Prabhakar, head of research, IDBI Capital
Priyank Upadhyay, AVP Commodity Research, SSJ Finance & Securities Pvt Ltd.
Jayant Manglik, Religare Broking Ltd
Soumen Chatterjee, Director- Research, Guiness Securities
Vinod Nair, Head Of Research at Geojit Financial Services
Vijay Singhania, founder-director, Trade Smart OnlineDisclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.