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Rupee has hit the bottom: Jamal Mecklai

Shorting the rupee at 68 is certainly not as easy a hit as shorting at 62

Jamal Mecklai  |  Mumbai 

Rupee depreciation-illustration

The daily drama surrounding the rupee makes it a foolishness to make any kind of predictions even a few days out. But being a proud fool and, further, leaving town for a few days, I will take a stab at it.

First, the facts: Between the opening on Monday, August 19 and the close on Wednesday, August 28, the rupee fell by Rs 6.45 - more than 10 per cent of its value in 10 days. However, nearly half (48 per cent) of this decline happened off-shore, when Indian markets were closed. Once and for all, it is clear that the NDF market has a significant impact on USD/INR, whether RBI likes it or not. Indeed, on the 29th morning, profit-taking in the NDF market on RBI's announcement of a separate window for oil companies, returned the rupee to 67.19, giving back 47 per cent of the total depreciation it had triggered since the 19th.

The frightening thing is that if global investors believe there is another opportunity, they won't hesitate to sell the rupee again.

The more than comforting flip side is that shorting the rupee at 68 (or even 67, or I would venture to say, 66 or 65) is certainly not as easy a hit as shorting it at 62. And, let's remember that speculators, by definition, are not just wild-assed punters - you see very few financial speculators (investors) at the race track or the poker table.

This means that there is unlikely to be huge speculative activity till such time as the rupee rises back substantially, and even then, it may be a bit circumspect, particularly since it is likely that by that time, exporters will have started selling forward cashing the truly extravagant levels they are seeing. Some of this may already be starting - last Friday (23rd), I got a call from a very large manufacturing company whose chairman wanted to sell his exports out to three years forward - clearly, he was making a windfall, since he was profitable way below 60. To his good fortune, he did not sell at 64 - it's hard to believe he won't at 67, particularly if the rupee holds at these levels for another day or two.

RBI can assist this process by easing up on the short end of the yield curve, which would bring the forward premiums down. Exporters seeing fabulously attractive rates and the forwards falling with a steady rupee would certainly come in. At some point, we could see a wave of selling, particularly if one or more of the big players started - where are you Alok?

The slightly easier money will give something of a breather to sentiment, in the hope that there's more to come. When you are really parched for any good news, even a little drop feels like a downpour.

In other words, and here, as promised, I'm sticking my foolish neck out, I think the rupee has hit bottom.

To provide some comfort to my foolishness, all the pundits also seem to agree that 60++ is certainly an overshoot from competitiveness considerations. In addition to the manufacturing company I mentioned, another client - a mid-sized IT company that I tried to shill into selling - told me he'd be happiest at 60. He hasn't yet sold, but I'm sure he will when the rupee rises above 67.

And, finally, since no forecast is complete without reference to one of my many gurujis - my father, in this case: When financial news makes the front page, its time to do the opposite, since the media is usually late to the party. I was reminded of this old market adage, which had fallen into disuse as a result of the proliferation of 24-hour financial channels screaming about this, that and the other, when I was invited to several panels on the rupee by the large general news channels. Clearly, financial news has moved to the electronic front page - time to sell dollars.

And, finally (really), another important learning from this episode is that, since the global market is, in any case, heavily involved with determining the value of the rupee, RBI needs to keep focus on further deregulation. The best place to start is to extend the trading hours for currency futures, and, of course, before that, taking the excruciating squeeze off that market. While it certainly is, as it should be, a hotbed of speculation, it is high time that RBI (and the government) woke up to the fact that speculators play a critical role in policymaking - that of telling policymakers when they have gone too far out of line.

The good news is that the government's hearing aid seems to be working - allahoakbar!

The writer can be reached at

First Published: Fri, August 30 2013. 11:25 IST