July 16, 2022
  • July 16, 2022

Global funds shun India and turn rupee into Asian worst currency

By on December 21, 2021 0

(Bloomberg) – The Indian rupee is set to end a tumultuous year as Asia’s worst-performing currency, with foreign funds fleeing the country’s stocks.

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The currency fell 2.2% this quarter as global funds pulled $ 4 billion in capital from the country’s stock market, the largest among regional markets for which data is available.

Foreigners sold off Indian stocks as Goldman Sachs Group Inc. and Nomura Holdings Inc. recently lowered their outlook for equities, citing high valuations, at a time when concerns over the omicron virus variant rock global markets. The record trade deficit and the central bank’s policy divergence with the Federal Reserve also affected the rupee’s carry call.

“The divergence of monetary policies and the widening of the current account gap have led to the depreciation of the rupee in the short term,” said B. Prasanna, head of world markets, sales, trade and research at ICICI Bank Ltd in Mumbai.

The depreciation of the rupee is a double-edged sword for the Reserve Bank of India. While a weaker currency may support exports amid an emerging economic recovery from the pandemic, it also poses a risk of imported inflation and can make it difficult for the central bank to keep interest rates at record highs. Longer.

QuantArt Market Solutions expects the rupee to drop to 78 per dollar by the end of March, breaking the previous high of 76.9088 reached in April 2020, while a Bloomberg survey of traders and analysts forecast the rupee at 76.50. The rupee is expected to fall around 4% this year in a fourth consecutive year of losses.

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The exodus of equities overseas led the benchmark S&P BSE Sensex to fall about 10% below an all-time high reached in October. Despite this, the one-year futures price-to-earnings ratio for the Sensex is close to 21, compared to 12 for the MSCI Emerging Markets Index, which means stocks may fall even further. Bonds posted outflows of $ 587 million this quarter.

Bearish calls for the rupee are mounting as India’s trade deficit widened to a record high of around $ 23 billion in November amid higher imports. The abundance of liquidity in the banking system, in part created by the RBI’s dollar purchases, could make it difficult for the central bank to intervene to the same extent in 2022 to limit the rupee’s losses, according to Goldman Sachs.

However, not all are pessimistic. A likely reversal of foreign capital inflows in the next quarter due to sales of shares in companies such as Life Insurance Corp. of India, billed as India’s largest initial public offering, could cushion the rupee, according to UBS AG.

The rupee gained 0.2% on Monday to 75.9163 per dollar amid speculation the central bank intervened to curb the rupee’s losses.

Beyond the temporary dollar / rupee surge expected over the next four to six weeks, “we are seeing one-off flows and favorable seasonality in the current account in the first quarter come into play,” said Rohit Arora, markets strategist. emerging markets for Asia at UBS. . “As long as oil remains under control, the rupee is expected to end the year below current levels, possibly in the 74-75 range.”

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