Rupee weakens amid Operation Sindoor, but no panic yet: IFA Global’s Goenka
Abhishek Goenka
CEO, IFA GLOBAL
He holds an MBA in Finance and has undertaken various certified executive programmes from the prestigious Harvard University. He has a rich experience in FX markets and the Treasury Consulting Business spread across 18 years. A voracious reader, Goenka is passionate about fitness, human psychology and spirituality.
Synopsis
Since April 2nd, the Rupee has underperformed against the Dollar. Operation Sindoor's launch on May 7th further weakened it. Other Asian currencies also weakened during this period. The Reserve Bank of India likely intervened to curb depreciation. India's strong external position helps withstand stress. The conflict with Pakistan is not expected to be prolonged. The Rupee might trade between 84.50-87.
By Abhishek Goenka, ET CONTRIBUTORS
Since the liberation day, i.e., 2nd April, when the Trump administration announced reciprocal tariffs, to 7th May, when Indian armed forces launched operation Sindoor, the Rupee had already been underperforming its peers.
Since 7th May, when the operation Sindoor was launched, the Rupee has weakened by 1.1%.
Most Asian currencies have also weakened during this period. In perspective, the Thai Baht and the Malaysian Ringgit have also weakened by 1.1% and 1.6% respectively in the same period.
Therefore, there has not been a major idiosyncratic impact, kind of what one would expect with a military escalation like this.
The RBI has most likely stepped in to curb runaway depreciation, which is something one would expect.
With a much stronger external position now than a decade ago, we are now much better placed to withstand periods of stress, especially over short periods of a few weeks.
Moreover, given the dire straits the Pakistani economy is in and the wide gap between its military prowess and ours, the conflict does not look like extending for a prolonged period.
FPIs have not sold Indian assets frantically in panic until now, and we believe they will objectively evaluate the situation as it unfolds. We do not see a scenario wherein FPIs dump Indian assets in panic. The first signs of de-escalation may throw open the floodgates of FPI flows. We believe that after the conflict ends, India's perception as a country with strong economic potential, stable pro-growth governance, formidable military prowess, and considerable international diplomatic influence will be reinforced.
A bit of Rupee underperformance, like what we are seeing now, could well be a blessing in disguise given the ongoing trade war between the US and other countries. It might just give us a competitive edge in lapping up the manufacturing opportunity that could be coming our way.
Though the current RBI regime seems to be more tolerant of allowing two-sided movement in USD/INR, we believe it will not allow runaway depreciation of the Rupee, at least not on account of idiosyncratic factors. We expect the Rupee to trade in an 84.50-87.00 range over the next 5 weeks or so.
We are advising importers and exporters not to overhedge and also take into account possible temporary delays/business disruptions on account of supply chain impact, especially in North and West India.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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While the Rupee had strengthened only 0.8% against the Dollar during that period, its Asian peers had appreciated anywhere between 3-5% (The Taiwanese Dollar was an outlier and had appreciated 9%)Since 7th May, when the operation Sindoor was launched, the Rupee has weakened by 1.1%.
Most Asian currencies have also weakened during this period. In perspective, the Thai Baht and the Malaysian Ringgit have also weakened by 1.1% and 1.6% respectively in the same period.
Therefore, there has not been a major idiosyncratic impact, kind of what one would expect with a military escalation like this.
The RBI has most likely stepped in to curb runaway depreciation, which is something one would expect.
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With a much stronger external position now than a decade ago, we are now much better placed to withstand periods of stress, especially over short periods of a few weeks.
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Moreover, given the dire straits the Pakistani economy is in and the wide gap between its military prowess and ours, the conflict does not look like extending for a prolonged period.
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FPIs have not sold Indian assets frantically in panic until now, and we believe they will objectively evaluate the situation as it unfolds. We do not see a scenario wherein FPIs dump Indian assets in panic. The first signs of de-escalation may throw open the floodgates of FPI flows. We believe that after the conflict ends, India's perception as a country with strong economic potential, stable pro-growth governance, formidable military prowess, and considerable international diplomatic influence will be reinforced.
A bit of Rupee underperformance, like what we are seeing now, could well be a blessing in disguise given the ongoing trade war between the US and other countries. It might just give us a competitive edge in lapping up the manufacturing opportunity that could be coming our way.
ADVERTISEMENT
Though the current RBI regime seems to be more tolerant of allowing two-sided movement in USD/INR, we believe it will not allow runaway depreciation of the Rupee, at least not on account of idiosyncratic factors. We expect the Rupee to trade in an 84.50-87.00 range over the next 5 weeks or so.
We are advising importers and exporters not to overhedge and also take into account possible temporary delays/business disruptions on account of supply chain impact, especially in North and West India.
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(The author is Founder and CEO IFA Global)(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
