FALLING RUPEE, CROUCHING MARKETS

By Ruma Dubey As per data available on the BSE, yesterday, FIIs were net buyers to the tune of Rs.711 crore &ndash; bought shares worth Rs.2851 crore and sold shares worth Rs.2140 crore. And today, the rupee v/s the US$ has slipped down below Rs.56, hovering around Rs.56.22/23, its lowest level since 25th July, 2012. NRIs are very happy as their earnings repatriated to India when the rupee is so down and out will earn them more. Those who want to convert rupee into dollar, this could not have been a worse time! It is good news for FIIs are looking to invest now but for those already there, the &lsquo;dollar investors&rsquo;, depreciating rupee is a hit on their earning. This current slide of the rupee is like the fall of gold prices &ndash; sudden, sharp and the scariest part is that no one knows where the bottom is. All kind of numbers, right from 57 and 58 to even 60 is being talked about. Yes, many feel that RBI might intervene and not allow the slide to these levels but no one really knows for sure. So what exactly is happening with the rupee and dollar. Today, the prospects of the Indian economy look pessimistic while US economy seems to be on the upswing, raising some hopes of sustained recovery. Plus in India, 2014 is the year of polls thus politically too, one does not know what to expect. Plus, FIIs have been waiting for a long time now, hoping that policies will take off and governance will improve but that too does seem to be happening. Simply put, FIIs are simply fatigued. Instead of looking at FIIs being net buyers and the rupee still falling, can you then imagine how much the rupee could fall if FIIs were net buyers and turned net sellers? So their buying to some extent is anchoring the falling rupee. And then there is the falling yen also to contend with, which is why the rupee is also strengthening and other Asian currencies are also falling. But amongst all, the Indian rupee is the worst performer. For India, it is falling currencies across Asia and inflation within which makes the rupee more vulnerable and uncompetitive in the global markets. Thus if we were hoping that exports will rise anytime soon and give support to the falling rupee; nah, that is not going to happen. But wait, it&rsquo;s not entirely apocalypse for the rupee yet. Our current account deficit (CAD) is a very bad picture at a record high of 6.7% of the gross domestic product but since then the Finance Minister has taken a lot of measures. March quarter CAD is forecast at around 5.5% of GDP and inflation &ndash; WPI has showed signs of retreat though retail inflation remains in the double digit. Maybe the worst is over for CAD and if that is indeed true then the rupee has to remain range bound and might not slip to the estimated levels of Rs.60/US$. If CAD remains under control, politics gets stable, some reforms get underway, growth starts showing signs of a pick up, interest rates come down, then maybe the rupee fall could get curtailed. But there are too many &ldquo;ifs&rdquo; here, the biggest being CAD &ndash; if that does not come down from 6.7%, well, then the fall of rupee could be anybody&rsquo;s guess. The falling gold and oil prices are surely welcome and will help provide the bottom to the rupee and control CAD. Do you the FM worried over the falling rupee?Rupee touching Rs.60 are extreme estimations; most likely that it will not breach Rs.58. This is a calculated guess; no one can truly predict the rupee and the god prices today!