1. Rupee’s rally after Modi’s sweep in Uttar Pradesh elections may fizzle out: Here is why

Rupee’s rally after Modi’s sweep in Uttar Pradesh elections may fizzle out: Here is why

The rupee’s rally after Prime Minister Narendra Modi’s resounding win in state elections may fizzle out, if what happened following his historic victory in national polls is any guide.

By: | Updated: March 21, 2017 2:43 PM
Rupee, Indian rupee, rupee's rally, Indian currency, Uttar Pradesh election result, Uttar Pradesh victory, Narendra Modi, majority win for Modi, majority win for BJP, economic reforms A similar rally around Modi’s victory in the 2014 national vote was followed by a more than 5 percent slide in the currency over the next six months. (Reuters)

The rupee’s rally after Prime Minister Narendra Modi’s resounding win in state elections may fizzle out, if what happened following his historic victory in national polls is any guide. Bets that a majority win for Modi’s party in the key Uttar Pradesh state will embolden him to undertake more economic reforms and lure foreign investors to India have sent the rupee surging to a 16-month high, making it Asia’s top performer this month. A similar rally around Modi’s victory in the 2014 national vote was followed by a more than 5 percent slide in the currency over the next six months.

The pattern will be repeated, according to Credit Agricole CIB and Australia & New Zealand Banking Group Ltd. “The rally in the INR looks overdone,” Khoon Goh, the Singapore-based head of Asia research at ANZ, wrote in a March 16 report. “We expect to see some retracement of the currency once the euphoria fades, just as what we saw following the 2014 election of Modi.”

The rupee was 0.1 percent weaker at 65.39 in Mumbai on Tuesday. It climbed 2 percent between March 10 and March 16, the biggest four-day gain since early 2015, with the election results being declared on March 11, a Saturday. Overseas investors have poured $1.3 billion into Indian stocks in just four days after the verdict, almost half of this month’s total inflow of $2.7 billion.

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The inflows in the past week have pushed the relative-strength index — a momentum indicator — for the dollar-rupee to below the 30-level that signals to some investors that the pair is oversold. It was at 19.4 on Tuesday. In 2014, the rupee rallied 2.5 percent over four days through May 19 after exit polls signaled a win for Modi, a prediction that was validated by actual results on May 16. The currency weakened 5.4 percent by Nov. 19, 2014. It sank to an all-time low of 68.8650 per dollar last November.

Currency Forecasts

The 2014 national-election victory for Modi’s Bharatiya Janata Party and its allies was the biggest in India in 30 years. The BJP’s 312-seat tally in Uttar Pradesh’s 403-member assembly this month brings the party to power in the state for the first time since 2002.

While the current rally has led ANZ and Deutsche Bank AG to raise their year-end rupee forecasts, both lenders still see the currency weakening to about 67.5 per dollar by Dec. 31. Deutsche previously estimated a slide to 70, while ANZ saw a drop to 69.5.

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“With last week’s elections being a bit less significant, this means that the INR upside, if any, is very limited and it should soon resume its downward trajectory,” Dariusz Kowalczyk, Hong Kong-based senior emerging-market strategist at Credit Agricole, wrote in a March 15 report. An expected widening of India’s current-account deficit to the largest in three and a half years would further weigh on the currency, he wrote.

  1. V
    Vivek
    Mar 21, 2017 at 9:07 am
    Still waiting for the 40 Rs/$ that was promised in 2014.
    Reply
    1. P
      parag
      Mar 21, 2017 at 9:21 am
      Most of the news now a days is click bait , Everything there is good news or news about the victory etc you write an article telling how things will go downhill from now on.
      Reply

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