|Thursday, 19 January 2012 01:03|
Crisil may have the last laugh on its Rs 46/$ by March
Some months ago, even respected CEOs were listening carefully to those forecasting the rupee would fall to 58 to the dollar, so it’s not surprising most laughed out rating agency Crisil’s forecast of 46 rupees to the dollar by the end of March. With the rupee appreciating from 53.29 on January 2 to 50.66 on January 18, Crisil’s forecast looks as if it may not be that much off. To be sure, things can go wrong, and even a slight dip in confidence levels can have huge implications when the current account deficit is likely to be in the 3%-plus range—that, and the fact that European banks need to liquidate a part of their $148bn investments in India to meet their recapitalisation needs, will continue to put pressure on the rupee.
Despite this, however, most analysts are forecasting a turn in the rupee’s fortunes, though few are as optimistic as Crisil. Standard Chartered projects the rupee at 52 in January-March and this rising to 48.5 by October-December, Morgan Stanley has 53.5 going to 50 and ANZ from 48.4 to 45.6—Citi is the most pessimistic with the rupee going from 54.5 to 53 in this period.
While Crisil’s forecasting was pegged on global growth getting stronger and therefore a renewed appetite for risk, the rupee appears to be getting stronger even as forecasts for global growth have got weaker. While the downward slide of the rupee got arrested when RBI restricted rebooking of cancelled forward contracts, there’s more to the recovery than that. Topping the list, of course, is the fact that, with interest rates all set to fall, both investment and consumption will get a fillip. And while investment recovery will take more than just interest rates falling, the government does look more serious than it did last year. Though three years late, competition in the power sector has finally been allowed with the power ministry notifying ‘open access’, we may finally get to see foreign airlines being allowed to invest in India, NHAI has got its act together and is awarding 20 km of road projects a day and though GST won’t happen in this budget, considerable progress has been made. Though there’s no clarity on whether retail FDI will be allowed, many believe the UP elections will pave the way for Mamata Banerjee exiting the UPA, so the government may feel less hobbled. The fact that the Sensex fell 25% last year and the rupee by 19% also set the stage for investors returning for cheaper deals—FIIs withdrew $358mn in 2011 but invested $630mn in the first 17 days of this month in equity; in debt markets, FIIs invested $4.5bn in 2011 and $3bn in the first 17 days of January. NRI inflows are also up, though the anecdotal numbers need to be discounted since there’s a lot of re-booking of existing deposits. It’s important to keep in mind the pressure on the rupee that will be caused by the ECBs/FCCBs India Inc needs to redeem, but Anil Ambani’s $1.2bn refinancing for RCom’s FCCBs shows a potential way out to lessen the impact.