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Rupee’s Dream Run Continues, May Rally To 63/Dollar

Indian stock markets and the rupee surged today with the Nifty hitting fresh all-time high of 9,158. Overnight, the US Federal Reserve hiked interest rates, as expected, but signalled no pick-up in the pace of tightening, soothing investors who had feared faster rate hikes. The rupee strengthened against the dollar, rising as much as 46 paise to 17-month high of 65.23 taking its gain this year so far to over 4 per cent against the greenback. In global currency markets, the dollar took a hit after US Fed stuck to its projections of three total rate hikes in 2017, instead of the four some expected. The rupee ended higher at 65.41 per dollar against Wednesday’s close of 65.69.

Here are 10 things to know:

1) Currency expert Jamal Mecklai, who is the MD & CEO of Mecklai Financial, said BJP’s election victory has helped the rupee blast through the resistance level of 66.50 against the US dollar. On the upside, he has a target of 63 against the dollar though he acknowledges that the Reserve Bank of India may not let the rupee appreciate significantly against the dollar as it will hurt the competitiveness of Indian exporters. On the downside, he has a target of 70 against the dollar, if the Federal Reserve tightens interest rate at a faster pace than anticipated.

2) The Fed’s tempered rate outlook also eased worries of a fresh burst of capital outflows from emerging economies such as India.

3) Global brokerage Nomura also expects the rupee to gain further due to the strong election verdict.

4) Analysts now expect PM Modi to embark on more reforms including foreign investment in the retail sector, labour laws, and cleaning up bad debt at banks.

5) Foreign investors have emerged big buyers of Indian shares after the state election result verdict. They bought shares worth over Rs. 5,000 crore in the past two sessions. This has also given a strong lift to the rupee.

6) Despite the sharp year-to-date rally in Indian stock markets, analysts see further upside the markets. Gaurang Shah of Geojit BNP Paribas Financial Services says markets are poised to move to much higher levels from hereon and any dip would be a good buying opportunity. After BJP’s state poll wins, the market is expecting more reform initiatives from the government, which will help boost economic growth, he added.

7) The Nifty has gained nearly 12 per cent so far this year. The state election verdict helped extend the rally that was triggered by better-than-expected third-quarter GDP numbers and earnings from Indian corporates, a supportive Budget and strong global markets.

8) The Fed, which raised its target rate by 25 basis points, or a quarter of a percentage point, to between 0.75 and 1.00 per cent, did not however flag any plan to accelerate the pace of monetary tightening, a concern that had lingered among some market participants.

9) Wall Street rose sharply on Wednesday after the Federal Reserve raised interest rates for the second time in three months, as expected.

10) Back home, the domestic market will be eyeing the current Budget session of Parliament and the progress of key GST Bills, says market expert Ajay Bagga. The government is planning to roll out the new tax regime from July.