The rupee is likely to be under pressure till December as the Euro zone crisis and the year-end profit booking by foreign institutional investors are expected to trigger dollar outflows from the country.
The rupee, which has been appreciating from mid-September, has depreciated by more than 2.5 per cent against the greenback in the last 10 days. From a level of 44.20 a dollar, it is currently trading at 45.30. During the same period, FIIs have also turned net sellers.
According to bankers and forex dealers, the rupee is likely to depreciate further to around 46 by December after which it is expected to recover.
More interest in dollar
Mr Satyajit Kanjilal, CEO of Forexserve, a forex consultancy firm, said, There were lot of foreign flows into the country on account of the IPOs. There were some hot money flows also looking to making arbitrage profits. But now, there is increased risk aversion among investors. The improvement in the US payroll data along with the Irish debt problems is seeing more interest in the dollar.
In the short term, the rupee may fall to 45.50 and probably even touch 46.20, he said.
Since November 10, FIIs have been net sellers in the equity market of more than Rs 1,200 crore. This is in contrast to the net buying of more than Rs 8,700 crore by FIIs in the first 10 days of the month.
This was a result of panic arising out of uncertainty in Euro zone and partly because of profit booking, said Mr Girish Iyer, Senior Vice-President, Markets Risk Advisory, Mecklai Forex.
The US currency, which has been gaining against other international currencies in the past few days, is expected to remain strong.
To depreciate further
Mr Ajay Mahajan, Managing Director and Head of Financial Markets and Institutional Banking at UBS, said there could be a further 1-2 per cent depreciation of the rupee from the current levels, in line with the impact on euro due to the Irish debt problems and a gain in dollar due to the better US economic data.
A range of 45.5-46 appears as the stable or equilibrium value for the rupee. If it goes to 46.0 levels, then it would be a good level for exporters to sell the dollar, given the interest rate differentials between the US and India,'' he said.
The rupee could trade in a wide range between 44.5 and 46 in December, as the market is illiquid and volatile. But after December, it could appreciate, said Mr J. Moses Harding, Executive Vice-President, Head-Global Markets Group, IndusInd Bank.
A weakness beyond 46 will only be temporary in nature. Foreign investors will continue to invest in India as there are not many alternative destinations. Once we enter the new year, the rupee should continue its appreciation, Mr Harding said.