]MUMBAI: Global economic factors have been leading to an emerging market rally, but the Indian rupee has been left out of it. Domestic reasons like upcoming elections, rural slowdown, high valuations and fiscal concerns have kept the investors on the sidelines, said a report by the HDFC Bank economists.
Indian rupee they said is “stuck in the pit lane for now”. In 2018, the US dollar was a clear winner and INR had appreciated against the greenback by 9.5 per cent. In the current year, while emerging markets are making a comeback, rupee continues to struggle, depreciating 1.6 per cent, the report pointed out.
Though it is difficult to directly correlate elections and the Indian markets, the rupee had appreciated in the run-up to the poll results in two out of the last three elections, the report said. However, it said that “a fractured mandate is a bigger risk, which is not yet fully priced in by the markets”. That is, when neither of the parties are able to get 50 per cent seats.
Rupee had depreciated an average 2 per cent in the three months post election results the last three times — in 2004, 2009 and 2014. “However, this time we expect volatility and overshoot before the elections, and hence, the general post-election depreciation is unlikely to play out, assuming there is a coalition government led by the NDA,” the report said.
An NDA coalition with a lower majority, combined with other factors, makes a base case scenario prediction for the rupee consolidation to around 69 by the end of 2019, and the worse case scenario (a fractured mandate with unstable coalition and other factors) prediction of 74 by June 2019 and consolidation at 72-levels by end of 2019.