The recent surge notwithstanding, the rupee is likely to weaken to 41 per dollar by September 30, the last day of the April-September accounting period, a poll of 15 entities showed. |
Volatility in local stock markets and an expected surge in dollar demand from oil refiners owing to rising crude oil prices are likely to render the local currency weak. |
If the poll comes true, the rupee on September 30 would be over 30 paise weaker from Friday's close of 40.69. |
Since the beginning of the current financial year on April 1, the rupee has risen 6.88 per cent. From the beginning of the current quarter on July 1, it has fallen just 0.10 per cent. |
The dollar/rupee pair on the last day of the accounting period is widely tracked because the currency hedges entered into by several exporting companies, particularly software companies, will be valued on that day. |
As a result of the near 7 per cent rupee appreciation in the first quarter, Information technology bellwether Infosys Technologies was forced to lower its full-year rupee wise guidance by 5 per cent. |
According to NIIT Ltd. and i-flex Solutions, the rupee will be at 41.00 and 41.20, respectively, on September 30. |
GAINS TEMPORARY |
The rupee gained nearly 1 per cent in the last two weeks largely owing to the rise in local shares, dealers said. |
The domestic stock market has risen 10 per cent in the last 10 sessions on revival of foreign fund inflows. |
Market players expect the indices to be volatile ahead of the Federal Reserve's monetary policy meeting September 18, which may even trigger some sales by foreign funds. |
The main share indices, Sensex and Nifty, closed 0.2 per cent down on Friday at 15590.42 and 4509.50, respectively, compared with Thursday. |
"The rise in the dollar/rupee could be led by the uncertainties over the sub-prime market and the volatility in the global and local share markets," said Rajeev Pawar, head of trading at American Express Bank. He expects volatility to be moderate. |
With sub-prime borrowers' defaults in the US rising, those funds exposed to the US credit markets have taken huge losses on their portfolios. |
"Shares in India and China are currently giving one of the best returns, but if the sub-prime market in the US turns uglier, then most indices will get hit and the dollar could head higher against the rupee," said a dealer with the Singapore branch of a US-based bank. |
OIL PRICES MOVE UP |
Oil companies have emerged buyers of the greenback on fears global oil prices will rise further as the Atlantic hurricane season is just round the corner and the US winter will set in shortly. |
On Thursday, oil prices were at $77.43 a 1 barrel, a near 7 per cent surge from $72.27 a barrel a month ago. In August, the prices had touched a life-time high of $78.77. |
"Rising oil prices will definitely hit profitability and raise our import bills," said Suresh Jain, treasurer with Indian Oil Corporation. |
"If the strong inflows from FIIs dry up, then the rupee will depreciate as the demand will be over-riding," Jain said. |
There could be a jump in dollar demand on account of high oil prices, said a treasury official with another large oil company. |
LONG-TERM POSITIVE |
Despite the negatives working against its appreciation, the Indian unit is likely to gain in the long term, feel treasury officials. |
"There are enough inflows to buoy the Indian currency. I expect the rupee to touch 40.25-40.50 by December," said Parul Shah, treasurer with Hindustan Construction Co. |
With interest rates expected to head downwards in the US because of the sub-prime worries, higher returns are expected to woo more foreign funds to Indian markets. |
Last month, the Federal Reserve slashed the discount rate by 50 basis points to 5.75 per cent. There are speculation it is expected to lower the more-tracked Fed rate by up 50 bps at the Federal Open Market Committee Meeting later this month. Foreign direct investment into Indian companies is also expected to be robust, which could tilt the favour for an appreciating rupee in the medium-to-long-term despite temporary snags. Government targets $30 billion FDI in 2007-08, against $15.73 billion received last year. Even the export target is set higher at $160 billion against $124.63 billion in 2006-07. |