Traders and analysts are hoping for inflows into equities and debt in 2023 as the Rupee declined close to its lifetime lows through most of December, reported Reuters. Investors are still hopeful, as a possible recession in global economies could bring inflows in Indian markets.
“In the next six months, the rupee should outperform, now that it has caught up with Asian peers. Equity flows should come back, as a recession is likely in global economies but India should be shielded from it. Plus, an easing of commodity prices could help our trade deficit,” Abhilash Koikkara, head of forex, Nuvama Professional Clients Group told Reuters.
On the back of high commodity prices, India’s current account deficit rose to a more than nine-year high in the July-September quarter. This caused a surge in Trade Deficit as well, the Reserve Bank of India (RBI) reported on Thursday.
External trade balances and concerns over a drop in exports weighed on Rupee as it failed to raise in the last quarter of 2022, even after global commodity prices and the US dollar weakened. Now, the rupee is set to end the year down nearly 11 per cent against the dollar, its worst annual performance since 2013, the report said.
In early December, traders flagged a cash dollar shortage as demand rose from the side of importers, corporates, and foreign investors. This was also given as one of the reasons for the weakening local currency, the report added.
However, the Indian rupee is likely to hold in a tight range in the early part of 2023 but the worst is possibly behind it, traders and analysts told Reuters. With the RBI intervening to prevent any sharp volatility, most bankers and analysts predicted the rupee would trade in the 81.50-83.50 range in the first quarter of 2023. The RBI is looking to rebuild its foreign exchange reserves.
So far, foreign investors have sold around $16.5 billion worth of equities in 2022. It was $3.76 billion in 2021. This flow will play a crucial role in 2023 for rupees.
“Equity inflows usually kick in, in January, but I think dollar demand will continue to far outpace the supply that’s coming, so there may only be an initial appreciation,” Ritesh Agarwal, head of treasury at CTBC Bank told Reuters.
He added that the Covid situation evolving in China and the rest of the world is a risk we need to watch out for carefully because that could again boost the dollar.