Summers are here and this time the season isn’t just hot but has become hotter already as we approach elections 2019. Elections in India aren’t easy, they are humongous by nature and effective in their presence. Being one of the world’s largest democracy in the world India is at a threshold with the election 2019 witnessing a paradigm shift in every way.
Elections in India are a major element to bring change in the overall system stature of the country. However, one of the biggest and essential impact it lays is on the economic front. The rumblings of elections are such in nature that they start making a disruption in the market contributing to the position of the rupee.
The major question that arises is where’s the rupee headed in 2019?
The widening of the question’s geography and the varied nuances brings us to the following observations:
But first, a rewind-
Prior to the general elections of 2014, the currency witnessed a tailspin by coming close to Rs 68 by the end of September 2013 following the US Fed’s sudden announcement of the withdrawal of its quantitative-easing programme. Then a month prior to the general elections of 2014 the rupee witnessed an appreciation by 20 per cent against the dollar.
The market saw the uprising of the rupee due to the much-anticipated reason- the landslide victory of the NAMO led BJP in the general elections of 2014. The assuring confidence of the market and the investors globally showed a drastic appreciation taking place in the rupee.
Now coming back to the present-
The Neverending Tussle:
While keeping a keen eye on the everyday development of the rupee here are some of the daily observations on the Rupee fluctuations:
- 03-04-2019: Rupee swung wildly by opening with a large negative gap at 69.27, fell to the day’s low of 69.38 in the opening hour itself and then fell steadily through the day to 69.00/05 just half an hour before close. There was no clear reason for the roller coaster ride that rupee witnessed yesterday. With Brent above $69.50 today, pressure on rupee will return soon as market conditions become normal.
- 04-04-2019: Rupee gained sharply again yesterday despite FPI’s selling in the equity markets and global crude prices remaining above $69 (Brent). The gain was mainly due to large dollar selling by some MNC banks to meet their rupee liquidity requirements. Eyes will be on RBI’s Monetary Policy announcement today. The crude price will also play a key factor and we’ll have to see whether crude prices break above the $70 mark. Rupee appreciation has gone much beyond the levels which could be supported by macro fundamental data and we expect correction as soon as the current aberration due to MNC selling is over.
- 09-April-2019: Rupee fell for the third day running yesterday, closing at 69.67 with rising crude prices taking the Centre stage. It might find some relief in the next few days depending on the interest of the foreign investors in the Vodafone Rights Issue that’s opening tomorrow with the dollar inflows due to the issue. However, any rupee gains during this time are temporary and will be outweighed by oil prices surge should Brent crude move past the danger $72-74 band.
- 10-04-2019: The rupee is likely to be supported today both by the dollar inflows linked to the corporate funding issues and the slight dip in global crude prices as the Brent trades below the $70.75 mark. It may find some relief on the interests shown by the foreign investors in the Vodafone Rights Issue that’s opening today. The rupee is likely to weaken towards the 70.00 level as we approach the final rounds of voting. The market might ignore the cut in growth forecast by the IMF yesterday, but the latter focus will grow the pressure on the rupee immensely.
- 11-04-2019: Rupee will remain to get the support over the next few days through the commercial inflows and the dollar sales related to the IPO helping the rupee to recover fast to close at 69.11. However, the surge in global crude prices remains a major worrying factor as the Brent crude rose above the $71.50 with expected further gains. Rupee will experience immense pressure due to a breach of the $74 mark as the fears of CAD and inflation reappear. A report by a leading MNC bank suggests that RBI will add to the current forex reserves by bringing the total reserves to $430 bio from its current level meeting any sudden political challenges, both domestically and globally. We still expect a fast rupee drop to 69.70/90 soon once the IPO related flows are absorbed.
The Current Scenario
Passing the last years’ weathering turbulence relaxingly the rupee is going to experience a testing time ahead of the general elections 2019. Although the rupee is getting stronger despite a strong dollar as we are seeing FII inflows, the co-relation between the rupee and the dollar index is low.
A significant movement in crude always ignites an appreciation to rupee and oil, however, trading in a narrow range the crude oil is getting nowhere.
The outperformance of the rupee under the stressed and ruckus held parliament are quite low. It can be said that if Modi led Government wins the general elections 2019, then the stability of the currency can be expected. However, if the opposition wins, the rupee stability may rest at bay What’s good right now is that the market’s expectation is low as the situations aren’t at extreme levels.
Through an Investor’s lens:
The investment of an investor depends a lot more on the fundamentals of a country and the movement of the country’s currency based on its fundamentals. While looking at our fundamentals we stand tall over them as one can see that there is no rise in the overall debt (excluding the corporate debt & NPAs.)
India in this position is low in comparison to other countries such as China and Brazil are facing a high debt scenario. For instance, if China runs into debt trouble then it would mean a crash in the commodity prices yielding a benefit for India as it is a big net importer of raw materials in the world.
Besides in the long term, if there’s no spark in the crude oil price and debt, the rupee will continue enjoying its stability for a longer period.
In the end, it will be exciting to see how the elections 2019 come out for the rupee.
Will it be a fun ride for the rupee or a roller coaster with turbulence?
Will the current government retain its power and gives a knee jerk to the oppositions or will the rumbling will extend to a coalition government?