Non-resident Indians have been benefitting from the falling rupee since August 2011, declining approximately 20 per cent over the last seven months.
A large number of NRIs repatriated money during this period. But outlook for the remainder of 2012 offers no good news for NRIs as the rupee will strengthen and squeeze their remittances.
Going by the recently-released study by Bank of America Merrill Lynch (BofA-ML), the rupee will strengthen substantially during the coming quarters reaching 47.50 to the dollar by the end of fourth quarter of 2012.
BofA-ML analysts Indranil Sen Gupta and Ashok Bhundia projected in the report that the rupee will likely drop to 50.0 in the next quarter.
The Indian rupee fell for a second consecutive session on Tuesday as outlook on foreign capital flows into local stocks and debt turned cloudy after hopes of interest rates cuts faded.
The rupee ended at 50.39/40 to the dollar, down from Monday's close of 50.23/24, after moving in a 50.1850 to 50.4250 range during the session.
One US dollar sent to India in August 2011 was fetching Rs44 and fell to Rs52 in the first week of January, getting Rs8 more for NRIs.
BofA-ML analysts Gupta and Bhundia forecast that the rupee downward trend will continue in the third and fourth quarters. The rupee will touch 49.0 in the third quarter and 47.5 in the four quarter, the analysts said.
“We believe the forex market is veering to our standing call of India's balance of payment risks being overdone, like 2008.
We continue to expect the RBI (Reserve Bank of India – the central bank) to defend Rs52/US$ by intervention and other administrative measures in case of a return to risk-off. At the same time, if risk-on continues, it will likely want to recoup the $20 billion sold during the current crisis even at the cost of a weak Indian rupee,” the two analysts said.
“If the rupee stabilises around current Rs50/US$ levels, the RBI could buy FX in March when exports perform seasonally better than imports,”they said.