Rupee likely to get breather from foreign inflows, say experts

A potential gush of foreign inflows on the back of a slew of large share sales is likely to bring reprieve to the Indian rupee.

The currency, which has become emerging Asia’s worst performer over the past month, may gain about 2 per cent from Wednesday’s close to 74 per dollar by the end of December, according to a Bloomberg survey. The rupee will also get a boost from foreign inflows as digital companies, including Warren Buffett-backed Paytm, plan to raise about $10 billion in initial share sales.

The rupee has come under pressure as surging commodity prices rekindled worries about inflation and the financial health of the net oil-importing nation. A stronger dollar, spurred by rising wagers of US stimulus taper, has also weighed on the currency.

“Historically, when crude was boiling, equities were sluggish, and money was not coming in, so everything turned negative for the rupee,” said Sajal Gupta, head of foreign-exchange and rates trading at Edelweiss Securities. But this time, “the slate of IPOs should substantially cushion the impact of high crude prices.”

The rupee has declined by 3 per cent since early September, and Abhishek Goenka, chief executive officer at India Forex Advisors Pvt. says the Reserve Bank of India may have allowed losses intending to correct the rupee’s overvaluation. The RBI may allow the rupee to trade in a wider range of 73.90-76.90 per dollar in the current fiscal year, Goenka said. 

Higher oil prices and fast recovering local demand have boosted imports, widening India’s trade deficit to an all-time high in September. 

Oil imports surged by about 200 per cent.

India got foreign inflows of $134.4 million into stocks so far in October, on top of $445.8 million in the quarter ended September, data compiled by Bloomberg show. Flipkart, the Indian e-commerce giant controlled by Walmart, and Paytm, the country’s leader in digital payments, are among companies aiming for an IPO before March end.

“Inflows will remain supportive of the rupee, especially amid vibrant IPOs,” said Dhiraj Nim, a foreign exchange strategist at Australia & New Zealand Banking Group. “The key driver could be the RBI’s policy. Assuming inflows sustain, the RBI will have to pare FX purchases, simultaneous to its management of surplus domestic liquidity.”