The Rupee received no respite during the month of June’13, as week after week, the currency depreciated sharply. At the start of the month, the Rupee first crossed the 11 month low and tested a level of 57.12 the first week of June’13. During the second and third week of June’13, the Rupee touched an all-time low of 58.978 and 59.973 respectively. Fundamental factors weakened and led to a continuing trend of weakening in the currency with the currency touching 60.7 towards the end of the month. The rupee has depreciated against the US dollar by around 10% since May (touching a closing low of 60.59 on June 27 and then recovering a bit). A weak rupee would impact the imported component of inflation, of which crude oil is a major component. A 10% depreciation of the rupee is expected to lead to a 0.6%-0.8% increase in WPI. This would reverse the trend of inflation in the coming months, which has been moderating at a rapid pace (4.7% in May 2013, at a 43 month low). Further, CPI inflation, though moderated gradually (from 10.9% in Feb 2013 to 9.3% in May), still remains on a higher side.
Over the month of June’13, FIIs pulled out $5.6 billion from the Indian debt market and $1.8 billion the equity markets, marking the highest amount of FII withdrawal in history. Emerging market economies including India are facing the brunt of the Fed’s decision as world over, markets had been accustomed to increased liquidity that overall raised demand for higher-yielding and riskier investments. With the pullback expected to begin in the coming months coupled with a slowing economic scenario in India and China, investment patterns are likely to witness a change.
A marginal increase was seen in India’s HSBC Mfg PMI for June’13. This slight increase in Indian manufacturing activity in June’13 was on the back of increase in export orders, which in turn could be backed by a weaker Rupee. For the March quarter, India’s HSBC Mfg PMI averaged 53.1, but fell in the June’13 quarter to 50.3, indicating the manufacturing activity in India has weakened considerably. Low domestic demand has led to the new orders index fall to the lowest since March’09 indices increased in June’13.
Hence, factors that led to depreciation in the Rupee over the last month are high Current account deficit, weak economic scenario, slowing Indian economy, weak IIP data, FII outflows, limited foreign exchange reserves of $290 billion, enough for just 7 months with the RBI, not suitable to prevent depreciation in rupee. A monthly trade deficit of $17 billion and a stronger Dollar Index.
India is creating an encouraging investment environment by opening room for investment in aviation multi brand retail and boosting infrastructure sector. Arvind Mayaram include higher FDI limits in key sectors like telecom, defence, insurance and retail and final announcements are awaited with respect to these may suggestions around July. Hence, the short-term trend in the Rupee is expected to be weak and a bounce back is expected once the measures action towards boosting FDI in major sectors are fully implemented.
Find more news and update here:- http://www.rrfinance.com/Reserch/ResearchHome.aspx
Also find company fixed deposits, fixed income, fixed deposit schemes by clicking this :- http://www.rrfinance.com/Fixed_Income/FixedDeposit.aspx