Rupee Weakens Mostly Speculative, Says Deepak Shenoy on FPI Equities Sell-Off in January
The Indian rupee has been experiencing a tumultuous ride in recent weeks, with its value plummeting to a record low against the US dollar. The currency’s decline has been attributed to a number of factors, including a surge in foreign portfolio investors (FPIs) selling Indian equities. However, according to Deepak Shenoy, a well-known financial analyst, the rupee’s weakness is largely speculative in nature.
In a recent interview, Shenoy, who is the founder of Alpha Beta Credit Rating, emphasized that the sell-off in Indian equities by FPIs in January was largely driven by speculative forces rather than any fundamental changes in the Indian economy. "The FPI sell-off was largely driven by a fear of a sharp interest rate hike in the US, which led to a flight to safety," Shenoy explained. "This, in turn, led to a sharp decline in Indian equities, which further weakened the rupee."
Shenoy pointed out that the Indian economy has been performing reasonably well, with GDP growth rates remaining robust and inflation under control. "The Indian economy is not facing any major challenges that would warrant a sharp decline in the rupee," he said. "The weakness in the rupee is largely a result of speculative forces, which can be reversed if FPIs start buying back Indian equities."
The rupee’s decline has had significant implications for the Indian economy, including a sharp increase in import costs and a potential rise in inflation. However, Shenoy believes that the impact of the rupee’s weakness will be largely limited to the short term. "The rupee’s decline will have some short-term impact on inflation and import costs, but the Indian economy is well-equipped to absorb these shocks," he said.
Shenoy’s views are supported by recent data, which suggests that the Indian economy is still growing at a robust pace. According to the Reserve Bank of India (RBI), the country’s GDP growth rate remained at 7.1% in the third quarter of the current fiscal year, despite the global economic slowdown. Additionally, the RBI has maintained its inflation target of 4% for the current fiscal year, indicating that the central bank is confident in its ability to keep inflation under control.
In conclusion, while the rupee’s decline may have been alarming, Deepak Shenoy believes that it is largely speculative in nature and does not reflect any fundamental changes in the Indian economy. As FPIs start to buy back Indian equities, the rupee is likely to stabilize, and the Indian economy will continue to grow at a robust pace.
