The slide in rupee against the US dollar is expected to continue in the coming days, with market experts seeing in the Indian currency falling to 73-74 level against the greenback by the end of the month, mainly due to the impact of the India-China trade war adversely affecting Asian currencies.
Reserve Bank of India’s (RBI) seemingly hands-off approach is only adding to the current slide in rupee, prompting market analysts to suggest that it could be part of the government’s efforts to give a push to exports from India.
The falling rupee value, however, is good news for most Gulf expats who can get more of the Indian currency for each of their dollars when they repatriate to India.
Though rupee marginally gained by 24 paise to touch 71.84 during the morning trading hours on Thursday, the Indian currency has lost about 5-6 percent against US dollar during the last 3-month period. rupee was trading at 68-69 level in early June.
“On-going trade tensions between the US and China, along with the overall concerns on Indian economy and agri sector due to the erratic Monsoon, rupee value can go down to 73-74 by the end of the month,” Ajay Kedia, managing director of Kedia Commtrade and Research, told Arabian Business.
"Uncertainties around further and sustained rate cuts by US Fed will also impact the movement of rupee against the US dollar," Kedia said.
The falling rupee value, however, has added to the loss of foreign investors in the Indian stock market, whose return on investments in dollar terms saw a major decline due to the weak Indian currency.
Market analysts said investors – foreign and Indian investors collectively - in India’s stock market have lost about $35.4 billion since June 4 this year when the benchmark BSE index S&P Sensex hit an all time high of 40,312.07, amidst concerns of further deepening of the economic slowdown in the country.
BSE Sensex was trading at 36,661 in the morning trading hours on Thursday, losing 3,651 points or close to 9 percent from the peak 3 months ago.
Market analysts expect the market rout to continue well into the closing months of the year, with some market experts even predicting the Sensex to plunge to 32,500-33000 level by Diwali, the Indian festival of light and sound which fall on October 27.
“Both sentiment and all economic indicators are negative for the Indian market currently and the situation is expected to continue for at least another 2-3 months. During this period, BSE Sensex could come down to as low as 32,500-33,000 level according to our estimates,” Kedia said
“The only positive for the Indian market currently is the relatively lower crude prices. But if the economy is not able to recover in another 2-3 months, even that advantage could be lost,” Kedia added.
After crossing the 40,000 level, all sectoral indices on the Bombay Stock Exchange showed declines up to 2 percent.
Though India’s finance minister announced some sector specific initiatives in recent few days - including relaxations in foreign direct investments (FDI) in some sectors, aimed to reverse the economic slowdown - some experts were cynical about these measures making any positive impact on the current market conditions.
“Foreign investors - both FIIs and FDI – are expected to put a break on their investments in India in the short term due to the weakening rupee and also because of the perception issue about investment outlook in India,” Ashok Jha, former finance secretary to government of India, told Arabian Business.
“Foreign investments, especially FDI, come based on perceptions. Currently the perception is that nothing is stable in India, especially on the tax front,” Jha added.For all the latest currencies and forex rate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.