Modi effect: Rupee best performing Asia-Pacific currency in 2014

[AVERAGE INDIAN]

NEW DELHI: Boosted by capital inflows and euphoria around the incoming government, rupee's surge to 11-month high levels has made it the best performing currency in Asia-Pacific region against the US dollar so far in 2014.

With a gain of about 5.3 per cent since the start of this year, rupee has sprinted ahead of its other Asia-Pacific peers, including Indonesia's rupiah and New Zealand dollar, in terms of year-to-date rise, shows an analysis of various currencies vis-a-vis the Greenback.

The rupee, which closed at 58.52 levels against the US dollar on the last trading day on Friday, has incidentally seen a lion's share of 5.3 per cent gain in the past one month.

The Indian currency stood at Rs 61.8 level per US dollar at the start of 2014 and has recorded a gain of 327 paise in less than six months, partly helped by robust foreign fund inflows. This marks a major turnaround since August last year when rupee touched its lifetime low of 68.80.

"...positive sentiments out of the election results enabled us to upgrade our FII flows estimates by $5 billion to $20 billion, implying an overall BOP (balance of payment) surplus of $29 billion. We expect the dollar/rupee range to be 57-61 in FY2015," said Indranil Pan, chief economist of Kotak Mahindra Bank, in a report.

Under the leadership of its prime ministerial candidate Narendra Modi, BJP has recorded an unprecedented victory in the recently held Lok Sabha elections and the Gujarat strongman will be sworn in as Prime Minister on May 26.

The highest-ever tally in the Lok Sabha elections has helped BJP secure a majority on its own, thus raising hopes of big-bang reforms to revive the economy.

In Asia-Pacific, the rupee's gains versus the US dollar are followed by the Rupiah (Indonesia) that has appreciated 4.6 per cent, New Zealand dollar's 3.75 per cent rise and Australian currency's 3.5 per cent rise.

The Yen (Japan), the Won (South Korea) and the Ringgit (Malaysia) have gained between 2-3 per cent in this calendar year so far.

Philippines Peso has appreciated 1.6 per cent against the US dollar, followed by 0.5 per cent uptick in Thailand's Baht and Singaporean dollar. While the Hong Kong dollar is almost unchanged since 2014 started, the Taiwan dollar and Chinese Yuan have lost value.

Some analysts, however, feel that the Indian rupee faces risk of some depreciation after its recent strong show.

"While Indian rupee is expected to depreciate slightly against the $from current levels (we pencil dollar/rupee to hover around 60 for this fiscal year), we expect it to gain against Yen and Swiss Franc," said a report from ICICI Bank Treasury Research Group.

Modi effect: Rupee best performing Asia-Pacific currency in 2014 - The Times of India

 

[AVERAGE INDIAN]

Banking on Modi, foreign investors to pour $60 billion into India: Study

NEW DELHI: Foreign investment inflows are estimated to more than double to $60 billion level this fiscal as overseas investors repose confidence in Narendra Modi-led government that is expected to unleash big-bang reforms to reboot the economy, says an Assocham study.

"Riding on huge expectations from the incoming Modi government, global investors are gung ho on the Indian economy which is expected to witness over 100 per cent increase in foreign investment inflows — both FDI and FIIs — to above $60 billion in the current financial year as against $29 billion during 2013-14," the study projected.

The net foreign investment inflows, led by aggressive foreign institutional investors (FIIs) in the Indian equity and debt markets in 2014-15, are expected to even overtake the figure of $46.17 billion during fiscal 2012-13, one of the best years for overseas investment inflows, it estimated.

"The unfolding scenario also points to easing of prices and lowering of interest rates, the two major challenges that the Indian economy had been facing for some years now," Assocham president Rana Kapoor said.

However, the emerging situation will pose a new challenge to the Reserve Bank to deal as it will have to balance the rupee rate and inflation from the increased liquidity into the system.

The new finance minister and the RBI, thus, will have to be on the same page in dealing with this scenario which will see strengthening of Rupee and a further improvement on the current account balance, Assocham said.

In the current fiscal, the FII investment would remain more than the FDI inflows, Assocham said. The expectations are that FII investment in both debt and equity could exceed $35 billion while the FDI money could be above $25 billion.

"If the Modi government is able to take some reforms-friendly measures along with taming inflation and earning goodwill of the people, the FDI will do a fast catch-up with the FIIs. The euphoria must be taken advantage of and things will move on from there," Kapoor said.

Significantly, India will continue to outpace all other emerging economies in terms of FII inflows which would not be affected much by the tapering of the Quantitative Easing by the US Federal Reserve, the study found.

Besides, as the new government goes about removing obstacles in investment, FDI is likely to pick up again in the key infrastructure areas of ports, airports, roads and energy, the study said.

Banking on Modi, foreign investors to pour $60 billion into India: Study - The Times of India

 

[AVERAGE INDIAN]

Narendra Modi to focus on boosting the rupee

The new Prime Minister, Narendra Modi, is likely to assiduously pursue policies for strengthening the rupee. Although he is yet to confabulate with the RBI bosses, sources who have insights into his thinking aver that the value of the rupee will be central to Modi's economic policies. "The rupee reflects the strength of the Indian economy and a declining rupee only showcases the fact that we as a nation are living beyond our means," is what is said to be the new PM's belief.

This means bolstering exports, cutting down sharply on imports and paving the way for more foreign investments. Analysts pointed out that in nationalist thinking that's the forte of the BJP, a strong rupee is an indicator of the "economic muscle" of India and thus one indicator of its international prestige.

The rupee, which fell sharply in 2013 — especially in July and August — has started strengthening after the BJP won the elections and in fact had been going up in anticipation of a Modi win. Although the gain in the value of the rupee was also part of the worldwide readjustment of currency values, much of it was also due to the improvement of sentiments.

fter months of paralysis in decision making by the previous government, it is expected that the new government will kickstart the process of growth — hence the buoyancy in the outlook. On Friday the rupee rose to an 11-month high of 58.37 to a dollar.

Analysts say that the rupee will face a strong resistance at Rs 58 because, they feel, the Reserve Bank of India is not keen on the Indian currency appreciating so far

The strengthening rupee is of great benefit to importers and to Indians travelling abroad but exporters gain out of the falling rupee. As a result, IT companies who earn dollars for their services will see red at the appreciating rupee. Many economists argue that the falling rupee can boost exports but this may not be absolutely true. This is because the demand for Indian goods overseas may be "inelastic", which means that sales abroad may not be so sensitive to price reductions.

In 2013, the rupee slid significantly. Ruling at 56.51 to a dollar at the end of May last year, by the middle of June it had fallen to Rs 58.41. In August 2013, it had plumbed a record low of Rs 68.85 to a dollar.

Economists point out the rupee value depends on both the fundamentals of the economy and sentiments. Last year's outlook was governed by low confidence, low growth and high inflation. Although sentiments have now improved and India as a country is on the way to be re-rated by the global investor community, the fundamentals are still not rosy.

Other than petroleum, gold and coal imports account for a major part of India's import bill. A reduction in the import bill can reduce the demand for dollars and thus control the value of the rupee.

India sits on one of the largest reserves of coal in the world. Yet, India is one of the largest importers of coal. At the end of the last financial year, India imported about 158.8 million tonnes of coal which is up from about 145.8 million tonnes a year before. Coal is imported because the Indian production is inferior — it has a lot of fly ash content.

Since the public sector Coal India has a near monopoly in production of coal, one of the first things that the Modi government is expected to do is to part-privatize this corporation. Foreign investment will be allowed big time into the sector that might raise the domestic production and the quality of coal. This will lead to more usage of domestic coal and moderate the coal import bill.

Less clear is Modi's policy towards gold imports. Though the pro-business lobby hopes that the new government would quickly ease gold imports, Modi men will have to take a view on this subject carefully. This is because of the possibility of runaway increase in gold imports — which is the second largest item in India's import bill. In fact in 2013, Chidambaram had clamped a 10% duty on gold imports and tied the imports to exports via strict rules. This moderated gold imports.

However, increase in gold purchases from overseas last year is also accounted by the lack of confidence in the Indian economy. Domestic wealth holders did not want to hold rupees — expecting the currency to depreciate; instead they favoured gold as a store of value.

Narendra Modi to focus on boosting the rupee - The Times of India