“If we begin seeing INR depreciating, then from a USD returns perspective for FPIs, India turns into unattractive. We may additionally witness a reversal of FPI flows within the close to to medium time period, which can enhance market volatility,” Naveen Kulkarni, Chief Funding Officer, Axis Securities PMS, mentioned.
Greater rates of interest within the US will drive main central banks, together with India, to extend rates of interest to stem the strain on their home currencies and with elevated rates of interest and value of capital, market multiples can contract, he mentioned.
The Indian rupee, which plunged 83 paise on Thursday, slipped under the 81 mark and depreciated 44 paise on Friday to hit contemporary all-time low of 81.23.
After having invested over Rs 51,000 crore in August, the tempo of FII inflows has already slowed down with web shopping for of lower than Rs 11,000 crore up to now within the month. Retail and different home traders have additionally proven reluctance to maintain flooding the market with ample liquidity.
Fed chair Jerome Powell, who sounded extra hawkish than anticipated, has elevated the rate of interest forecast to 4.4% by the top of 2022. The indication is that 125 bps extra charge hikes might be anticipated within the remaining two coverage conferences scheduled this yr.
“The rising of charges will put strain on the RBI to react as nicely to guard the INR and keep away from monetary stress. In such a situation, it’s smart to keep away from cash-burning companies and companies which have too excessive debt,” mentioned Sonam Srivastava, smallcase supervisor & Founder, Wright Analysis.
Analysts say the rupee will keep beneath strain until the RBI takes motion.
One other ache level for the rupee could possibly be the escalation of stress between Russia and Ukraine. In case the vitality price goes greater, the rupee might proceed to slip.
“We might even see some correction within the US greenback as soon as the central financial institution acknowledges enchancment within the inflation scenario. One other problem for the US greenback could possibly be aggressive tightening by different central banks to regulate inflation in addition to attainable central financial institution interventions to assist their currencies,” mentioned Ravindra Rao, VP- Head Commodity Analysis at Kotak Securities.
(Disclaimer: Suggestions, ideas, views and opinions given by the consultants are their very own. These don’t signify the views of Financial Occasions)