The Indian rupee touched a fresh record low of 68.89 against the
dollar in opening trade, falling 26 paise from the previous close.
On Tuesday, the
rupee plunged by 30 paise to hit a 19-month low of 68.54 against the US dollar
in early trade. In the previous session, rupee posted the biggest single
session fall against dollar since June 19.
As the fall in rupee value against
dollar continues, here are four possible reasons behind the fall:
Dollar demand
The dollar's
strength against some currencies overseas weighed on the local unit.
Dollar strength has risen against its major crosses.
OPEC announcement
Post the OPEC
announcement last week, crude prices have been finding support on lower levels
and subsequently keeping currency under pressure.
Trade war rhetoric
The
rupee depreciated sharply against the dollar in the backdrop of the rising
trade war rhetoric led by the United States, ICICI Direct said.
Trends in other markets
Weakness in Chinese Yuan and other
emerging market currencies, including the rupee, are under pressure against the
US dollar, said Motilal Oswal.
Earlier this month, the central bank had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25 per cent to 6.25 per cent.
The Reserve Bank of India is expected to push key policy rates
higher again in order to keep inflation in check, says an HSBC report.
Earlier this
month, the central bank had upped its retail inflation projection by 0.30 per
cent and kept the policy stance in the neutral zone, even as it hiked the key
rate by 0.25 per cent to 6.25 per cent.
The global
financial service major believes there is room for further rate hikes.
"India may
also tweak rates higher. Oil has delivered a bit of a sting, hurting the trade
balance and stoking price pressures. To keep inflation expectations in check,
RBI may need to push rates higher again," Frederic Neumann, co-head of
Asian economic research at HSBC said in a note.
According
to official data, retail inflation jumped to a four-month high of 4.87 per cent
in May on costlier food items such as fruits, vegetables and cereals, coupled
with high fuel rates. In May last year, the retail inflation was at a low of
2.18 per cent.
The
HSBC report noted that "it is hard to see India's central bank following
the Fed move for move: it, too, will lag the US by a substantial margin".
As
per the report, there is a divergence in monetary policy across the world.
While on one hand, the Fed looks determined to hike further, on the other,
central banks elsewhere don't seem to be in a hurry to up the rates.
Expectations
for Fed rate hikes have increased further in recent weeks, with HSBC's US
economists adding another 50 bps in hikes to their projections by end 2019.
Even
as the Philippines nudged rates higher, officials don't expect a prolonged
tightening cycle.
While
Indonesia, India, Singapore, might hike policy rates, Australia's central bank,
Thailand, Malaysia and Bank of Japan may give it a miss, the report said.
"Even if much of the world economy
is still expanding, relative performance is diverging. And that means monetary
policy is too, keeping investors on their toes," Neumann said adding that
"divergence will stick around for a while".
The Emergency refers to a 21-month period between June 25, 1975 and March 21, 1977
June 25 often brings back memories of threatened democratic
rights — taken away for 21 months after then Prime Minister Indira Gandhi
imposed Emergency in 1975.
To mark this
occasion, the Bharatiya Janata Party (BJP) is observing June 25 as a
'black day'.
What is Emergency?
The Emergency
refers to a 21-month period between June 25, 1975 and March 21, 1977. It
was officially issued by then president Fakhruddin Ali Ahmed under
Article 352 of the Constitution due to prevailing "internal
disturbances". Article 352 of the Constitution granted the Prime Minister
'extraordinary powers'.
IndiraGandhi had imposed the Emergency
after Allahabad High Court and subsequently, the Supreme Court, found her
election to the Lok Sabha 'null and void'. Following this announcement, protests
and strikes swept the country. The then government stated threat to national
security and bad economic conditions as reasons for declaration of Emergency.
With suspension of fundamental rights, several citizens,
journalists and politicians including opposition leaders like
Vijayaraje Scindia, Jaiprakash Narayan, Morarji Desai, Chaudhary Charan Singh,
Atal Bihari Vajpayee and Lal Krishna Advani were arrested without any trial.
Media right were also censured during the period.
Fresh elections were called after the Emergency officially
ended. Congress lost by a large margin, resulting in the Janata Party's Morarji
Desai becoming the first non-Congress Prime Minister of India.
In June 2017,
Prime Minister Narendra Modi had said the Emergency was the darkest time in the
history of India. In his monthly radio programme 'Mann ki Baat', PM
Modi had said it was essential to remember the incidents which have caused
harm to democracy and move ahead towards the positives of democracy.
He is extremely bullish on Tata Steel as he sees major rise in EBITDA (earnings before interest, tax, depreciation, and amortisation) if steel prices remain at current levels.
Pharma
"I am pretty sure that worst is behind for pharma sector as generic competition in the US is leveling off," Jhunjhunwala said.
He is positive on the domestic branded pharma businesses. "Indian pharma industry is entering unknown, but exciting space."
Healthcare majors Sun Pharma & Lupin entered into speciality generics, the next leg of growth.
Banking
He feels there is an unprecedented growth opportunity in the banking sector. "Once provisioning normalises for banks, earnings & multiples will expand. Banks with legacy problems will show strong growth," he said.
He is extremely bullish on troubled banks. "ICICI Bank carries characteristics of HDFC Bank in terms of CASA. For ICICI Bank, FY19 will see repair & FY20 will be a year of clean growth."
Return on assets and return on equity of private banks with legacy problems will improve in FY19 & FY20, he feels.
Jhunjhunwala said NCLT (National Company Law Tribunal) & IBC (Insolvency & Bankruptcy Code) will inculcate a sense of credit discipline. "People are underestimating long-term benefits of IBC & NCLT."
Healthcare Insurance
Jhunjhunwala is bullish on healthcare insurance in India. He sees a lot of growth opportunity in health insurance. "Healthcare insurance in India can grow 20 percent for the next 10-15 years."
Real Estate
He sees great next 2-3 years for the real estate sector. "I don't think real estate prices will increase, but volumes will grow. We are underestimating the positive impact of affordable housing," he said.
Jhunjhunwala has some investments in the real estate sector.
Consumption Space
All the potential growth in consumption stocks is priced in, he said, adding over next 5 years, FMCG returns would be lower than FMCG earnings growth.
According to Rakesh Jhunjhunwala, there is no credible leader in the opposition party to take on PM Modi. I am sure that the next government will be a BJP government despite what people feel, he said.
Indian equity market, which bottomed out in August 2013, saw a stellar run in 2017 and in 2018 initially, boosting Nifty50 higher to touch 11,000-mark in 2018, but now it maybe be in for some consolidation, Rakesh Jhunjhunwala, Partner, Rare Enterprises said in an exclusive interview with CNBC-TV18.
We witnessed a massive up move in markets and if the market remains in the range of 10,000-11,000 for the next 1 year, I would be very happy, he added.
In his conversation with CNBC-TV18, he said that investors should not get disheartened with the recent correction. Because, the bull market cannot end at the current level of profits-to-GDP. The flow of local money into equity markets has just started and the flow is unlikely to stop anytime soon.
The Bank for International Settlements, which is also known as the central bank of central banks, said bitcoin is “a poor substitute for the solid institutional backing of money” in a part of the annual report released on Sunday.
The BIS counted multiple “shortcomings” behind its opinion. It said cryptocurrencies are too unstable, consume too much electricity, and are subject to too much manipulation and fraud to ever serve as bona fide mediums of exchange in the global economy.
The most striking finding of the 24-page-document was about blockchain, the underlying technology behind bitcoin. The 88-year-old institution also said the blockchain could not be used for the retail transaction as the size of ledgers would swell eventually leading to the collapse of the internet.
