Rupee’s Santa rally: How domestic currency’s rise may impact stock markets, economy in 2019

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Published: December 21, 2018 3:41:04 PM

The latest upside, on account of low oil prices and a less hawkish Fed, is expected to extend into 2019 as well, market and economy veterans expect.

As we near Christmas, rupee once again appears to be re-gaining strength after becoming Asia’s worst performing currency in 2018.

As we near Christmas, rupee once again appears to be re-gaining strength after becoming Asia’s worst performing currency in 2018. The latest upside, on account of low oil prices and a less hawkish Fed, is expected to extend into 2019 as well, market and economy veterans expect. Even as such a rally in the domestic currency is negative for the exporters, it’s a good news for the stock markets, says veteran investor Sandip Sabharwal.

“INR has appreciated in a seasonally weak quarter for the rupee. As we enter the January to March quarter it’s the seasonally strongest quarter as remittances pick up and exports bring back export proceeds. As such INR should be strong at least till March. It is negative for exporters and positive for domestic cyclicals and also the overall market”, he tells FE Online.

However, not much should be read out of this rally, says Madan Sabnavis of CARE Ratings. Strength of the US dollar versus rupee and India’s balance of payments position should determine how the domestic currency would fare in the coming days, he tells FE Online.

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“I would be cautious on extrapolating this scenario into the future. The future of rupee depends on two things: our balance of payments position – in net terms do our forex reserves increase or decrease. The second is how strong the dollar will be,” he notes.

A stronger rupee would benefit FPI flows for certain as there is less volatility, Madan Sabnavis says when asked how stronger rupee may impact bourses.

The direction of crude oil prices would crucially determine the sentiment related to emerging market currencies, particularly of large oil importers such as India, says Aditi Nayar of ICRA tells FE Online.

“If crude oil prices remain relatively stable around current levels, we expect the INR to trade in a range of 69-72 to the US$ in the near term”, Aditi Nayar adds.

Meanwhile, rupee is up 3 per cent this quarter, registering the best performance in Asia after Indonesia’s rupiah. Between Monday and Tuesday this week, rupee had earned nearly 2 percent scripting its biggest two-day gain since September 2013.

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