Remit now? Indian rupee could soon fall below Rs16 to Dh1

In what may not be really heartening news for Indian expats in the UAE and across the world, the rupee seems to have grown wings. The Indian currency has firmed by almost 6 per cent in little over two months and a massive 12.5 per cent since hitting its all-time low in early September last year.

The Indian rupee famously crumbled to Rs18.55 vs. Dh1 (Rs68.15 vs. $1) on September 3, 2013, exactly seven months ago. Today, April 3, 2014, the rupee is trading at around Rs16.23 vs. Dh1, hitting remittance power of Indian expats in the UAE. According to UAE Exchange, the UAE’s expats sent home more than Dh51.4 billion last year, of which Indians were the biggest remitters.

However, with the rupee gaining strength against the US dollar (and dollar-denominated currencies) on the back of a recovering economy, expats may well find themselves short of cash at the remittance counters as experts reckon the Indian currency could gain further strength.

“The rupee gained further last week as it breached the 60-per-dollar mark for the first time in eight months, prompting the central bank to put up some stiff resistance. The gains came on the back of foreign buying of equities and debt,” write Subash Gangadharan, an analyst with the India-based HDFC Securities, the brokerage arm of HDFC bank.

According to his latest weekly currency report, the USD/INR pair is in a downtrend, with a target of hitting Rs59 vs $1 (Rs16.06 vs Dh1) this week. “The rupee rose 3.15 per cent in the March quarter, its best quarter since the 4.96 percent rise in the September quarter of 2012. For the month of March, the [rupee] gained 3.1 per cent, its best month since September 2013,” the analyst noted.

“There have been good inflows seen in the Indian markets. The near-term outlook depends on the central bank’s monetary policy but there is good support for the dollar at 59.80 levels. The rupee’s further gains could be capped by a cautious central bank,” he said.

Technically, the USD/INR pair remains in a downtrend after breaking its recent supports. Our downside targets are at 59.”

As foreign investors continue to pump in money into Indian equities and other asset classes in the belief that the forthcoming general elections in the country will see a business-positive government being formed, the Bombay Stock Exchange Sensitivity Index, or Sensex as it is better known, has been making lifetime highs over the past few days, ending the day at 22,551 points yesterday, after making an intra0day lifetime high of 22,588 points.

“Foreign funds have purchased a net $3.7 billion in equities from the start of 2014 until March 27 while in debt, the net inflows stand at $5.8 billion,” said Gangadharan. “Traders will continue to monitor foreign fund flows in the near-term for cues. Indian indices continue to hit record highs as state-run lenders such as State Bank of India continued their recent rally after the central bank extended the deadline for implementing Basel III capital-raising rules.”

In a reverse move from a few months ago, when India’s central bank was often seen selling US dollars from its reserves to prop up the beleaguered currency, the RBI was seen buying dollars intermittently over the week to slow the rupee’s upward movement in addition to replenishing its foreign exchange reserves.

India’s forex reserves rose to $298.64 billion as on March 21, its highest since December 2011. Some traders also speculated that the central bank has likely bought nearly $2-$3 billion over last week in its attempt to slow the rupee’s rally.

“Gains in other Asian currencies also supported sentiment. Most emerging Asian currencies advanced, heading for weekly gains as speculation grew over China's economic stimulus and the yuan’s rebound,” Gangadharan added.

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