While the spread of the pandemic is a major factor behind rupee's decline, there is more to what meets the eyes. Other factors are also contributing to rupee's fall.
Rupee has been driven to a fresh low and as coronavirus continues to make headlines. While the spread of the pandemic is a major factor behind rupee’s decline, there is more to what meets the eyes, Rahul Gupta, Head Of Research- Currency, Emkay Global Financial Services, told Financial Express Online. He also elaborates the factors driving rupee volatility, why the coronavirus pandemic will affect price actions on other asset classes as well and what will finally arrest rupee’s fall. He also speaks about an industry which will likely benefit from the rupee depreciation.
Edited excerpts of Rahul Gupta’s conversation with Surbhi Jain:
What are the factors impacting rupee?
The primary driver of rupee to fresh record low level of 76.54 is the rapid spreading COVID-19 and its contagion effect, although there are other external factors such as dollar index, crude oil and emerging market currencies which also play the major role in rupee’s fate. When there were heavy outflows from local stocks and equities, the depreciation in the rupee was capped by falling crude oil prices.
Rupee falls to a record low vs dollar, how long do you see investors sentiments to remain fragile?
Despite the recent uptick in local equities, we saw rupee breaching record low level of 76.54. The stock market surged on hopes that the coronavirus pandemic is nearing a peak and governments would roll out more stimulus measures. The investors’ nerves have been calmed for short-term, however, they will continue mulling over the spread of coronavirus and when will economies be able to ramp up again.
Which factors do you see will support rupee in coming days?
The virus headline will continue to dominate price action across all asset classes worldwide. For rupee, the only factor that can support rupee is reduction in coronavirus cases all over the world and investors see real recovery in the market and get over the uncertainty.
Who all benefit in a weak currency scenario?
Usually a weak rupee is good for exporters since they get more money for their exports. All export-based industry benefits from a weak rupee. For example, information technology and pharma companies benefit from a weak rupee since most of their revenues come from foreign countries.
What strategy should traders take in the current scenario?
The global scenario is still fragile and no one knows when the pandemic will end. RBI has been trying best to cap the liquidity in the forex market however it is not enough. We need heavy inflows to appreciate rupee towards 74 and lower levels. Currently, market is very volatile and uncertain. In such cases, importers are hit badly, thus it is beneficial for them to be hedged.