Rupee weathers tapering scare, unlikely to see sharp fall

The earlier-than-expected US Fed tapering on Thursday morning (India time) came in as a second consecutive surprise after Wednesday’s no-hike RBI policy review alright, but the country’s capital markets did not exactly see a carnage. They were prepared for this eventuality, experts said.

The rupee was among the least impacted by the Fed tapering, falling just 0.02% as against 0.34% to 0.85% fall in South-east Asian currencies on Thursday.

The equity markets, too, did not witness panic selling with S&P BSE Sensex correcting a bit by 0.73% or 151.24 points to close at 20,708.62 even as the Nifty, too, slided by 0.81% or 50.50 points to end the day at 6166.65.

Experts believe that the RBI’s efforts to boost its reserves in recent times and markets’ factoring in a probable tapering saved the blushes for the rupee.

Anindya Banerjee, currency analyst at Kotak Securities, believes that the $10 billion-a-month tapering announcement led to weakness in the emerging market currencies, but Indian currency was more resilient thanks to recent improvement in India’s current account deficit position.

Siddarth Bhamre, head of derivatives, Angel Broking, believes that foreign institutional investors or FIIs would have unwounded their long positions as open interest in index futures went down by 7-8%, but the fact that they didn’t sell much in the cash market suggests that the stock market may not see a sharp cut in the near term.

The banking index was the major loser falling 2.43% while the capital goods sector too fell by 1.91%.

Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, believes that the US Fed tapering may cause short-term volatility going ahead but from medium-term perspective, it’s likely to be positive.

“ We would still hold on to our base case of Rs60-65/USD if the US dollar trades around 1.30/euro,” he wrote in a note on Thursday.