Forex: More Pain Ahead!!!

Forex: More Pain Ahead!!!

Ø  The Indian rupee tumbled to its all-time low as jittery global investors pulled out funds amid fast deteriorating economic health and higher than reported trade deficit .

Ø  Given the magnitude of the crisis, it is obvious that there are no quick-fix solutions; revival process will be a long-drawn struggle, thus causing severe damage to the investor and consumer confidence. The impact of this on the global economies and market will be very negative.

Ø  We feel if Rupee continues to depreciate we may continue to see more outflows from FIIs. India may not be able to reap benefits of softer commodities price because of the sharper depreciation of rupee. Overall the weakened macro-economic fundamentals are also reflecting in the large twin deficits, which in turn are hurting the rupee and increasing fears of more downgrade by global rating agencies .

Ø  Market dynamics continues to remain bearish. There is severe pressure on trade/current account; flows into debt capital market is down and not expected to revive soon; FII flows into equity capital market will be down not ruling out reverse flow.

Ø  On the flip side ailing rupee and high inflation would make it difficult for India to achieve 7.5 per cent economic growth during the current financial year.

Ø  In short, there is more pain ahead. We See Rupee sliding to 56-57 levels soon. The rupee has been the worst performing unit amongst its Asian peers this year.

Ø  While weak trade data and choppy domestic shares added to the downward pressure, we feel the Forex situation is in grave and it will make equity market vulnerable and hence we may witness further sell-offs from foreign investors.