The partially convertible rupee weakened past 43 per dollar to its lowest level in 13 months in opening deals on Thursday, as record oil prices raised worries of a widening trade deficit.
At 9.02 a.m., the rupee was at 43.10 per dollar, a level it last traded on April 6, 2007. It had closed at 42.83/84 on Wednesday.
The rupee will climb from a 13-month low as the end of a worldwide credit market slump encourages investors to buy emerging-market assets, corporate treasurers in India said.
JSW Steel Ltd., the nation’s third-biggest steelmaker, predicts the currency will rise almost 7 percent in the next year to 40 per dollar, Finance Director Seshagiri Rao said. Grasim Industries Ltd., the No. 3 cement maker, and Larsen & Toubro Ltd., the largest engineering company, say India’s growth and rising company earnings will fuel the rupee’s recovery.
``Which other countries are growing at 8 percent or so? Very few,’’ Yeshwant M. Deosthalee, chief financial officer at Mumbai-based Larsen, said in an interview. ``Investors have been holding back due to risk aversion. Once such concerns ease, they’ll have to look at India. The rupee’s tendency to appreciate will resume.’’
India expanded an average 8.7 percent a year since 2003, second only to China among the world’s 20 largest economies. The central bank forecast the $912 billion economy will grow as much as 8.5 percent in the 12 months through March 2009.
The rupee may advance to 39.50 against the dollar by the end of the year from yesterday’s close of 42.83 per dollar in Mumbai, according to the median forecast of 21 analysts surveyed by Bloomberg.
Short-Term Weakness
``The rupee’s weakness is only for the short-term,’’ Mumbai-based JSW’s Rao said in an interview. ``Indian companies are doing well and may show an average 20 percent growth in the year ahead. That should help the stock market rebound’’ and create demand for the rupee, he said.
The currency slid 8 percent this year, after rising 12 percent in 2007, on concern that rising energy costs will widen India’s record current account deficit. The broad measure of trade and investment flows was negative $5.4 billion in the fourth quarter, compared with a shortfall of $4.7 billion the previous three months. A wider deficit means the nation needs more dollars to finance the gap.
``Exporters could use the situation now to convert some dollars if they think the rupee won’t weaken further,’’ said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore.
The rupee is the second-worst performer among the 10 most- traded currencies in Asia after the South Korean won. It reached 42.915 per dollar on May 16, its weakest since April 12, 2007.
Less Pessimistic
A flight from all but the safest government assets led funds based abroad to sell $2.1 billion more of Indian stocks and bonds than they bought this year, after purchasing a net $19.5 billion in 2007, according to data compiled by the Securities and Exchange Board of India. The Bombay Stock Exchange’s Sensitive Index, or Sensex, is down 15 percent in 2008 after rising 47 percent last year, when the rupee had its biggest gain since 1974.
International investors became less pessimistic on global equities this month as concern that the world economy is slipping into a recession eased, a Merrill Lynch & Co. survey showed on May 14. Money managers who oversee $615 billion favor emerging markets, the survey of 191 fund managers conducted between May 2 and May 8 showed.
An advance in oil prices may cause the rupee to extend a three-month decline as demand for dollars to pay for crude increases, according to Mumbai-based Essar Group, which owns oil, steel and shipping businesses. Crude climbed to an all-time high of $135.04 per barrel today, and imports rose to a record $8.6 billion in March, government data show.
Easing Curbs
``The rupee may fall as low as 43.25 before the end of the month as oil prices keep rising to new records,’’ said N.S. Paramsivam, head of treasury at Essar.
Offsetting that may be India’s plan to ease nine-month old curbs on overseas borrowings, said D.D. Rathi, chief financial officer at Nagda, Madhya Pradesh-based Grasim.
The government imposed limits on such borrowings in August to slow capital inflows after the rupee’s surge threatened to erode export earnings. Indian companies borrowing more than $20 million overseas need the central bank’s permission to bring the funds back into the country.
``Any further loss in the rupee should not be sizeable,’’ Rathi said. ``Some of the factors that contributed to its decline, such as the curbs on external borrowings, may ease.’’
No comments:
Post a Comment