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Rupee: A Spent Force?

May 20, 2008


“Ouch! that hurts!”, cried out my wallet.”That hurts, mighty bad”…
For the nth time, since this Spring, I let out a helpless groan, and murmured “Aww.. shut up!”, and dig on a veg burger.

As I sit on the airport terminal for my flight to land, I am wondering if I am a bit too harsh on my wallet. Yes, it does hurt, I know, after the ‘god-knows-where-to-stop’ oil prices,inflation and all the bad news ahead, rupee has fallen like anything. India’s current account deficit has diverged. Diverged from the figure it should be in line with.

Something like our politics.
On the last count, two parties, the extreme rights of Maharashtra (Shiv Sena) and the lefts of Mah were trying to name pav bhaji, as Shiv and Bhim. [ This should go to footnote: They stand for Shivaji and Bhimrao Ambedkar.]

I am not exactly sure, if they would love to attach their names to roadside chat, but well the takeaway (not from the chaat point of view of course) is that current deficit and politics have diverged.

And yes, it leads to falling rupee as well. And what seems to be like ‘damn-the-torpedoes’ charge of rupee last year[it appreciated by 12%], now seems like a return back to the same old status. Hovering at 42 at the time of writing.

Dollars have appreciated too. And well, rupee fell on the slightest of sneeze. One important thing to be noticed is Central Bank is really ‘in’ for a weaker rupee. Its controls are asymmetric and at best skewed. It hates to see, strong rupee and of course loves a weak one. So, now that rupee is falling and RBI is rejoicing, IT stocks are overjoyed and investors are loving it, I am feeling pretty sour, as to me it is again going to test the support levels of Rs 44/USD. Awful. One interesting note is, last year, RBI was pummeled into letting rupee rise beyond this level. So a pretty strong resistance and support level has formed and with what seems is that even if rupee wants to fall beyond 44 levels, RBI won’t let it.
So is it the new bottom?
Something very closely resembling to quality of our Indian movies[ couldn’t spare the comparison, but indeed the quality of Hindi movies are testing new bottoms.]

There is something really interesting about rupee. Back in 2002, Goldman Sachs predicted [a fantastic opinion by Mr. Ajit Ranade over here] that rupee will appreciate by 2% YoY for the next 48 years… that is till 2050. So, where do we stand now? Holding pretty well as of now.In fact exactly where we are now. At 42, a 2% growth YoY for the last 6 years. But I think, Goldman Sachs will love to have a better pie. I see, rupee suffering a temporary setback, [come on, you got to blame the rest of the world!], yet I see, rupee scaling newer heights once the system becomes a bit more stable.

I am very much tempted to digress to the global economics, but in short I think, that in global finance, you should believe in ‘there-is-a storm-lurking-out-there-when-everything-is-calm’ adage more often than not. Subprime crisis came on and went on, food crisis is on now, but I think soon there is something more fundamental change coming[for which I am extremely bullish on Asia and to a lot of extent Russia].[just a speculation]. So in short, rupee will breach 35 levels by the end of this decade, a seemingly 4.2% growth from the beginning of the decade.

So how does it come forth for rupee? Positive.Extremely positive. And as Ajay Shah says, controlling rupee is not the way to go ahead.

And yes, rupee ain’t a spent force, kiddo.Stay invested!

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