Rupee may hit 62/$ if Q2 GDP above 5%: StanChart Bank

Agam Gupta of StanChart Bank foresees India’s Q2 GDP at 4.7 percent, which is slightly above the street expectation of 4.6 percent. In an interview to CNBC-TV18, he said that strong growth seen in exports may result into a slight upside surprise to this estimate.

Meanwhile, industry body Assocham has pegged the country's growth at 5.4 percent for the July-September quarter on improved agricultural output. Gupta further added that the Indian rupee could test 62/USD mark if the Q2 GDP is higher than 5 percent. On the flip-side, bonds may see a slightly negative initial reaction if the GDP is above estimates. Below is the edited transcript of Agam Gupta’s interview with CNBC-TV18 Q: What are your expectations from the Q2 gross domestic product (GDP)? Do you think that there is a possibility of an upside surprise? A: We are expecting slightly higher than the consensus of 4.6 percent. We are expecting the GDP to print at 4.7 percent. This is after taking into account all the data that is available but the fact that export growth has been very strong could give us slight upside surprise to this number, but I am not expecting significant upside surprise. Q: If we do get positive surprise then what reaction we can expect on the rupee? A: If we see higher than 5 percent, which the finance ministry sources have indicated two or three days ago, then that will definitely have a positive impact on the rupee. The rupee has worked itself into a range. The rupee can test 62/USD if you get strong number of 5 percent. Q: The market is expecting it be, anywhere from 4.6-4.7 percent even the CNBC-TV18 poll expects a Q2 GDP to come in at 4.7 percent. If that comes through do you think the market will expect a rate hike in the upcoming December policy? A: I think the market is little mixed on that because of the various statements that the RBI governor has made. He has repeated that not one single data point is going to make him increase rates. Also, he indicated that if inflation follows the trajectory that they have set out then they are probably done with rate hikes. Standard Chartered expectation is that they will hike rates once more by 25 bps in December and the fact that the inflation print remains high, the revisions to the inflation print are also coming pretty high, will probably be a driver for this. The only way that the rate hike might not come through is if growth surprises dramatically on the downside. Q: How do you expect the bonds to react if incase we do get a figure closer to 5 percent mark? A: It is ironical because if the number is high then it shows that the economy is doing well and revenue collections will be good. The main concern right now is the fiscal deficit rather than rate hikes on the bond side. A 25 point rate hike is negative for bonds but whether the government can meet fiscal target convincingly is more of a concern on the bond market side. So, if you get high growth, if you get a growth number above 5 percent then the initial reaction might be slightly negative for bonds but if beyond that then positive for the bond market.