The Rupee’s as you know has its historic low – 58.84. Exporters see this as an opportunity to make India the world export powerhouse by de-bottle-necking manufacturing infrastructure. Were as the weaker currency makes imports costlier, especially of foreign oil on which India heavily relies, and will stoke already high consumer inflation.
Let’s try to explore the reason behind the free fall:
1) Dollar Trading at 3 Year High : USD is trading at 3 year high at 84.3, US stock market are at life time high, Strength in USD indicating recovery in US economy. Housing market is recovering. Job situation is improving which makes market participants believe the US fed will be tapping the QE infinity. Gold which was safe heaven for investors has been quiet volatile off late, so investor looking for the stable and non volatile instruments has again turned their attention to USD. So the Dollar Index has been strengthening one of the reasons Rupee is depreciating at rapid pace.
2) FII Selling heavily in Index Futures: FII has sold 3900 cores in Index Futures from start of June series, this is a hedging move as FII has pumped in 15 Billion Dollars from the start of Year, and also cash market buying has come to standstill in past trading sessions.
3) Demand for Gold and Oil importers: India has to import crude oil to meet the domestic requirements. There has been continuous demand for the green back from oil importers, the biggest buyers of dollars in the domestic currency market, purchasing the rupee lower. Oil and Gold imports account for 35% and 11% of India’s trade bill respectively. Gold import hit 162 tones in May, another record twice monthly average of 2011.
4) No Green Shoots in Indian Economy: Indian Economy is still not out of woods, Consumer and Food inflation is still at highs, Fiscal Deficit is large, IIP is almost flat and Growth concerns still Lingers. The Rating agencies also putting pressure to make India from current of BBB- with negative outlook to JUNK status if Fiscal and current deficit are not brought under control.
To conclude at a satire note Rupee at 58..59…60…Let us thank Congress and PM Maun Mohan Singh for this slide. They are more bothered about Modi vs LKA than country……..