Rupee to be among best performing EM currencies: HSBC

Below is the edited transcript of the interview to CNBC-TV18.

Latha: We have got some good current account deficit (CAD) numbers for the Q3. It is less than 1 percent for that quarter, the deficit, 1 percent of the gross domestic product (GDP) and today we have the rupee at an 8 week high. Would you want to buy the rupee even at these levels? What are the levels you are looking at?

A: The data is certainly concerning for the better for the rupee over the last number of months. I think Q1 is still a positive period for the rupee. Historically, when we look back at the data flow and the high yielding and risk asset currencies by the rupee then we do think there could be some more room for the currency to do well.

We did know that the number was going to be low, given how the trade deficit had improved. It still does add to the positive sentiment around the currency. I still think there is room for the rupee to appreciate versus the dollar and over the near-term we are going to forecast the dollar rupee at 61/USD by the end of the quarter. So, we do think there is little bit more room for the currency to go from here.

Sonia: What is going on in the market or has been going on in the last couple of days. Has there been a lot of dollar selling by exporters and by banks?

A: Without being into specifics of who is selling, these things are sentiment-free and currency has continued to remain resilient over the last few weeks and that is particularly the case for the high yielding currencies. This period is a positive period for these currencies, there are lot of funds in the market. It is the start of the new year and funds will be looking to put in place these trades where they can look to pickup those high yields. This will be the the case and the data remains a bit positive in this period.

When we move later into the year, it will be more difficult for the high yielding currencies to continue to and to make these kind of gains. So, we got to try and take advantage of the near-term moves and up to the end of Q1 we can see some positivity and the market sentiment is likely to remain relatively robust.

Latha: Would you see some hedge funds play here?

A: I think across the market when one looks at how Indian currencies moved through the start of the year in India as well as elsewhere, January was a pretty difficult time for assets and we did see some selling out of local assets and out of the currencies. As we have gone through February, certainly this sentiment has turned better. I do not feel like it’s particularly heavy already and short dollar position, so certainly there’s a bit more room for the currency to move.

Sonia: Within the emerging market (EM) basket of currencies how is the rupee stacked up, what would the pecking order be?

A: High yielding currencies will generally do better than the low-yielding currencies within emerging markets (EMs). It may temper some of the optimism for the rupee, For example, the onshore bond market would be more liquid, but given the high-yielding situation and the fact that the rupee has seen a pick up in the domestic rates front, I think that we will see the Indian rupee as one of the best performers within the region over the coming weeks.