Jul 05 2018

Why Rupee still looks scary?

In over 4 months, Rupee has depreciated by 7.5%. Despite complete reversal of gains made in 2017, rupee looks vulnerable to further slide. We try to analyse the factors which haven’t yet played out against Rupee.

  1. Resilient equity markets – The corporate performance is steady on account of efficiencies brought in by GST. This, coupled with high contribution of retail and DII participation, has kept equity markets checked from any downturn. On the contrary, SSE Composite has lost almost 14% in last 2 months which by any means is a huge correction. Indian equities, sooner or later, will follow the correction in value.
  2. Quietly moving closer to LS / Vidhan Sabha elections – The rhetoric or the noise around elections in BJP ruled states and Lok Sabha elections will gather steam as we approach the end of this quarter. BJP is looking weak and torn in Rajasthan while MP is likely to be retained with some losses. The charisma of Modi-Shah duo will lose its shine if anti-incumbency is witnessed in BJP ruled states in run-up to Lok Sabha elections.
  3. Chinese Corporate defaults – The dragon is expected to spring new surprises from the aftermath of trade war with US. Trump is unlikely to take a step back after staging a dramatic push back with G7 allies on trade policies. The US aggression to stop China misuse trade through currency and state support, will lead to bloodbath in Chinese corporate debt markets. The impact may trigger fresh sell-off / risk-off mode globally.
  4. Lastly, stubborn crude oil may attempt $85 / barrel – With Iranian supplies drying up in Q4 CY18 and the cartel gaining prominence on limiting supply can open $80-95 channel for crude oil. We will give this a 30% probability.


Above factors, if played out, in sequence will deteriorate or add fuel to fire against the domestic unit.