With India’s recent demonetisation drive injecting fresh liquidity into the country’s banking sector, the rupee has emerged much stronger – an outcome that was initially considered unlikely of not downright impossible.
This hasn’t just left the analysts confounded, it’s left most non-resident Indians (NRIs) wondering what to do with their plans to remit bulk amounts ‘when’ demonetisation results in the weakening of the rupee, a scenario most analysts had promised them.
While the jury is out on whether the rupee has seen its worse in recent months, our panel of experts have delivered the verdict on the million-dollar ‘Should I remit now or hold?’ conundrum.
And the answer is.
“In the short term, as the rupee is expected to strengthen, it is advisable for NRIs to remit. Unpredictability in the US and Europe, and relative political stability in India bodes well for the currency,” says M.R. Raghu, senior vice president-research, Markaz.
“Low oil prices, rise in FII inflow, weak dollar, political stability and a host of reforms, with GST at the forefront, have led to the rupee performing well in the FX markets. The trend is expected to continue for the near- to medium-term, as the government would be emboldened by its victory in recent state elections, and continue on its reform agenda,” he explains.
India posted real GDP growth of 7.1 per cent during third-quarter of financial year 2017, the quarter may not have the full impact of demonetisation step as the reported number accounted from October till December 2016.
“The current exchange rate strength was due to the RBI [Reserve Bank of India, the country’s central bank] changing its stance to neutral from being accommodative and strong Foreign Portfolio Investment inflows on account of [the BJP’s] recent victory in UP election. We may see short-term strength but this may dilute going ahead unless GDP growth picks up,” says Dr R. Seetharaman, Group CEO of Doha Bank.
India’s recent state election, which was in five key states, was won with a majority by the ruling party BJP. The party won in Uttar Pradesh and Uttarakhand with a thumping majority, and this strengthened the case for BJP in the Upper House over the next two years.
“The recent rupee strength is due to renewed confidence in the Indian economic outlook. The impressive win in state election in Uttar Pradesh has increased confidence that the Narendra Modi-led national government will remain in place for years to come allowing them to continue to advance their pro-growth reform agenda. Foreign investors lacking countries around the world to invest in with anything like India’s potential have accelerated their capital flows into the country,” said Gary Dugan, chief investment officer – Wealth Management, Emirates NBD.
Earlier, the ruling party did not have a majority in the Upper House and was finding it difficult to clear legislative reforms. The major election victory saw FPI inflows of more than $4.5 billion in the month of March alone. These developments primarily resulted in gain for the Indian rupee, coupled with softness in Dollar Index and range-bound oil prices.