The depreciation of the Indian rupee continued this week amid a stronger dollar and frequent foreign fund outflows, offsetting support from gains arising from sharp domestic equities. On Friday, the rupee had closed down 12 paise at 79.25 against the US dollar. The local unit has touched all-time lows in the interbank forex market over the past weeks. Experts believe that as long as the dollar stays above 102 and crude oil prices above $ 90 per barrel, the rupee may remain under pressure.
Anand James – Chief Market Strategist, Geojit Financial Services on current performance said, “Assessing the prospects of 78.6, we had posted a downside correction to 78.95 to accelerate to 79.17. However, such a move developed on the lines anticipated yesterday. , the upswings extended to 79.25, which attracted liquidation pressure, and we are back in the consolidation band of 79.17-78.95, with only a slight breakout expected.”
,Rupee Weak trading this week, crossing an all-time low of below 79.25 Dollar The index rise near $107 pushed the rupee,” said Jatin Trivedi, VP Research Analyst, LKP Securities.
For the coming week, Trivedi said, “Uncertainty on returns from riskier assets as well as global recession set the rupee in a downtrend. Rupee may continue to weaken as long as the dollar index remains above $102 and crude oil prices remain low.” Prices remain near 2-decade high above $90 index. Will keep additional pressure on Rupee.”
India’s foreign exchange reserves have suffered a setback amid weakness in the rupee. Foreign exchange (foreign exchange) reserves declined by $5.083 billion to $588.314 billion for the week ended July 1, due to a sharp fall in foreign currency assets (FCA). All components of the stock have fallen.
According to RBI data, FCA’s reserves declined by $4.471 billion to $524.745 billion in the reporting week. Moreover, gold reserves declined by $504 million to $40.422 billion during the week, while SDRs rose by $77 million to $18.133 billion.
Meanwhile, the country’s trade deficit touched a new record of $25.63 billion in June 2022 from $24.3 billion in May 2022. According to the latest figures, from April to June 2022, the trade deficit is $70.25 billion. In June 2022, India’s merchandise exports stood at 37.94 billion – taking the total to $116.77 billion in Q1FY23. On the other hand, imports increased to $63.58 billion in the month under review and stood at $187.02 billion in the first quarter of the current fiscal.
Moreover, this year, till July 8, FPI outflows in the Indian market remained at a low level. 2,31,708 crores. Overall, equities were the worst hit with outflows of 2,21,454 crore, while sold to the tune of 14,341 crores have been seen in the debt market so far. However, FPIs were buyers in debt-VRR and hybrid instruments, whose inflows 14,341 crore and 2,240 crore so far.
Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services also said, “If the trade deficit continues to remain high, there is a further depreciation of the rupee on the upside. Likely in the next 2 months for $80. FPIs can wait and watch the rupee move before making major purchases in India.”
Earlier this week, Yes Bank analysts said in their Ecolog report that the widening of the trade gap to a new record high raises concerns about India’s external account strength.
In their note, analysts at Yes Bank said they consider 3-scenarios for India’s current account balance, with average oil prices at $100 a barrel, $110 a barrel and $120 in FY23. per barrel. The note said, “Despite the expectation of some buffer on invisible inflows, FY23 CAD is likely to exceed $93-111 billion in FY23 ($47 billion in FY22). As a % of GDP, CAD 2.6-3.2% likely to occur in FY23. eg, weakening external balance, increase in FII outflows, decline in import cover, tightening by AE, expected to put downward pressure on USDINR.” Due to which the analysts here expect that the rupee will reach the level of 81 per dollar by the end of March 2023.