The rupee is not only rising against the greenback, it has gained much faster and higher against euro in recent times as well.
On Friday, the rupee touched 55.9358 against the euro on Friday.
In the last eight months, the Indian currency has appreciated by almost 21% against the euro. At the same time, the dollar has appreciated almost by 16.34% against the euro. However, rupee has appreciated by only 5.23% against dollar during the same period.
Dealers note that with the euro heavily weakening against the dollar owing to the Greece crisis , rupee too is seeing an appreciation against the greenback.
Says Madhusudan Somani, head of foreign exchange trading at YES Bank, ?We expect the trend in the euro weakness to continue due to the turmoil in the overseas markets. Moreover, with foreign funds flowing into India, given the strong growth in the economy, rupee is all set to gain. We think rupee may touch 52 levels against the euro by the end of September,? he said.
Somani observes that traders would now take short positions on the euro and long on Asian currencies.
Europe is the second largest market for Indian IT companies. Exports to Europe account for close to $15 billion of the total exposure of IT companies. With the euro weakening, top firms like Tata Consultancy Services, Infosys Technologies and Wipro, which earn between 20% and 25% of their revenues in euros and pounds, stand to lose big time.
C Chandrasekhar, senior vice-president at Mecklai Financial, observed that IT companies here with large exposure to euro will see their earnings getting impacted due to the appreciation in rupee, but then this can partly get compensated with dollar getting strengthened.
?It will take a while for the euro to stabilise. The package announced by the EU is also not too clear. We will have to see how the crises would be tackled,? said Chandrasekhar.
A report by Mecklai Financial pointed out that RBI has diversified its reserves to holding 50% in dollars, about 35% in euros, 5% in yen, 3% in sterling and a surprisingly large 7.26% in non-SDR currencies, like CHF, AUD in December 2009.
According to the weekly statistical supplement released by the Reserve Bank of India, foreign exchange reserves have dropped drastically by $3.4 billion to $276.2 billion in the week ended May 7, 2010.
While foreign currency assets fell by $3.3 billion to $251.5 billion, gold reserves remained unchanged at $18.5 billion. Meanwhile, special drawing rights with IMF also plunged by $75 million to $4.9 billion. Reserves with the IMF fell by $20 million to $1.32 billion.