A man counts rupee notes in Mumbai on Monday. (AFP)
Mumbai, Aug. 19: The relentless battering of the rupee is being fanned by an overwhelming negative sentiment that fails to recognise the factors in favour of the currency.
The Indian unit has crashed more than 12 per cent so far this calendar year, making it the worst performing currency in Asia.
However, forex circles said the rupee should not be seen in isolation. Some other currencies have also faced the heat as they are exposed to the same fears haunting participants in India.
While some of these fears may not be misplaced, experts said the forex markets had also not taken into cognisance some of the positive factors in the past couple of months.
Krishnamoorthy Harihar, treasurer, FirstRand Bank India, said, “The sentiment is overpowering the fundamentals. The rupee is not getting the benefit of the doubt.”
The tapering of US Federal Reserve’s bond purchases, weak equity markets and tepid inflows from foreign investors have been the major factors for the rupee’s crash.
According to Harihar, the markets are ignoring positive data such as the trade deficit declining to $12 billion in July from $20 billion in May.
He said the central government, too, had announced its firm intention of controlling the current account deficit at $70 billion this fiscal by cutting imports of items such as gold and silver.
Another development that has been overlooked is that foreign institutional investors have not been major sellers in the equity markets.
Sources said though foreign investors had sold banking stocks in the past few sessions, they had turned their attention to sectors that can benefit from the rupee depreciation such as pharmaceuticals and IT.
An analyst said the efforts taken by the government and the Reserve Bank to moderate gold imports were beginning to have the desired impact. The country’s gold and silver imports declined 34 per cent year-on-year to $2.9 billion in July. If the trend continues, this can have a positive impact on the current account deficit, bringing down pressure on the Indian currency.
Though there are fears regarding withdrawal of the US stimulus next month, Harihar feels it may not happen soon since the US economy is not out of the woods.
“Any indication that it (the withdrawal) may not be front-loaded or it can be pushed back can lead to a good rally in asset prices,” he said.
The attention of the world markets is, therefore, focused on the US Federal Reserve’s meeting on Wednesday which is expected to provide hints on the possibility of the US central bank resorting to tapering off its quantitative easing programme from September. Both the stock and the forex markets are expected to remain edgy till then.