The Indian economy has been under repair for almost 4 years now. The hard work done by BJP led government at the centre has resulted in a stable economic scenario. The economic reforms led by demonetisation and tax structure reforms are likely to take India to 8%+ growth trajectory in 2018-19. This will be aided by widespread increase in infrastructure spending leading to job creation and demand for core industries.
The recent announcement of recapitalizing banks has spurred markets and opened channels of capital flow for the MSME sector. The knee-jerk reaction of GST rollout is going to be short-lived. We believe the economy is going to roar once GST teething troubles are over with millions of businesses coming in mainstream tax structure.
The only missing factor is job creation amid digitisation of business process resulting in reduced headcounts in almost all the industries. This will limit consumption led demand keeping inflationary trends under check.
Looking at the above factors we believe the exchange rate will be stable going forward. The 63 to 66.50 range will hold on for the next 6-9 months provided there are no external or geopolitical shocks from Euro zone or China. The state assembly elections results in Gujarat and Himachal is likely to reduce the opposition to size clearing way for Narendra Modi to win 2019 Lok Sabha election.
In the foreign exchange markets, what should be the strategy for exporters and importers going forward?
- Exporters need to be cautious while keeping their dollar denominated exposures unhedged
- Importers to partially hedge (20-25%) through forward contracts short-term liabilities around 64.20-50
- Short-term Buyer’s credit and FCNR (B) exposures to be kept open for a possible move to 63.80-64.10