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No cause for alarm, rupee is stable all right

Vikram Murarka in Calcutta

Today the Indian rupee lost some ground against the US dollar, moving to Rs 42.70 (Rs 42.78 at the peak) from Rs 42.45 yesterday. Is another devaluation on the cards? No.

Over a one-month time-frame, the market ought to trade in a range of Rs 42.50 to Rs 43.00. Over a three-month time-frame, the maximum one would expect is Rs 43.50.

The rupee has not been "devalued" today. It weakened today on account of inter-bank trading in reaction to a flash on a newswire service that Jayalalitha would oppose a trust motion in Parliament. The story later proved to be unfounded. So much for the "Amma" factor.

Compared with the major international currencies like the yen, euro and pound, which fluctuate to the extent of almost one per cent every day, the rupee is not volatile at all. Today's movement has been just 0.77 per cent, after almost eight months of stability (since mid-August 1998) around Rs 42.50.

Finance Secretary Vijay Kelkar, according to media reports, has hinted at rupee depreciation to spur exports. This is a recurring phenomenon -- politicians and bureaucrats, exporters and chambers of commerce calling for a weaker rupee to kickstart exports.

Well, the rupee is not the panacea for our dismal export performance. Even after the sharp fall in the rupee from near Rs 39.25 in March 1998 to Rs 42.50 by June (a fall of 8.28 per cent), exports have not grown in 1998-99. We have to admit that there are other factors governing exports like the state of the world markets and world trade, the quality of Indian goods, delivery schedules etc. Deep-rooted problems are holding back Indian exports. Calling for a weaker rupee signifies a search for quick-fix solutions.

The BSE Sensex is a better indicator of the rupee's health than imports or exports. A level of 5000 is not unachievable for the Sensex over the next six-12 months.

This is the best time to buy Indian stocks. With companies like Infosys Technologies listing on the NASDAQ and Satyam Computers planning an ADR issue, and foreign institutional investors keen on the market, there is no threat to the rupee.

Consider this: the Asian crisis has cooled off, there is some hope of an economic revival on the horizon, inflation is below five per cent, India's forex reserves are in excess of $ 31 billion. There is no reason for FIIs to pull money out of India.

The only disturbing aspect is the Amma factor. But both the equity market and the forex market seem to have learnt to live with political uncertainty in general.

What happens if the Bharatiya Janata Party government falls? A Congress-led coalition may come to power. Who will be the finance minister then? Maybe, Manmohan Singh. Is that a reason to sell the rupee? No.

Disclaimer: Those acting in the market on the basis of the views/ forecasts/suggestions made above, will do so holding themselves responsible for any profits or losses that might occur.

Vikram Murarka is a Calcutta-based forex consultant

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