Rupee weakens amid Operation Sindoor, but no panic yet: IFA Global's Goenka
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Since the liberation day, i.e., 2nd April, when the Trump administration announced reciprocal tariffs, to 7th May, when Indian armed forces launched operation Sindoor , the Rupee had already been underperforming its peers.While the Rupee had strengthened only 0.8% against the Dollar during that period, its Asian peers had appreciated anywhere between 3-5% (The Taiwanese Dollar was an outlier and had appreciated 9%)Since 7th May, when the operation Sindoor was launched, the Rupee has weakened by 1.1%.Most Asian currencies have also weakened during this period. In perspective, the Thai Baht and the Malaysian Ringgit have also weakened by 1.1% and 1.6% respectively in the same period.Therefore, there has not been a major idiosyncratic impact, kind of what one would expect with a military escalation like this.The RBI has most likely stepped in to curb runaway depreciation , which is something one would expect.With a much stronger external position now than a decade ago, we are now much better placed to withstand periods of stress, especially over short periods of a few weeks.Moreover, given the dire straits the Pakistani economy is in and the wide gap between its military prowess and ours, the conflict does not look like extending for a prolonged period.FPIs have not sold Indian assets frantically in panic until now, and we believe they will objectively evaluate the situation as it unfolds. We do not see a scenario wherein FPIs dump Indian assets in panic. The first signs of de-escalation may throw open the floodgates of FPI flows. We believe that after the conflict ends, India's perception as a country with strong economic potential, stable pro-growth governance, formidable military prowess, and considerable international diplomatic influence will be reinforced.A bit of Rupee underperformance, like what we are seeing now, could well be a blessing in disguise given the ongoing trade war between the US and other countries. It might just give us a competitive edge in lapping up the manufacturing opportunity that could be coming our way.Though the current RBI regime seems to be more tolerant of allowing two-sided movement in USD/INR, we believe it will not allow runaway depreciation of the Rupee, at least not on account of idiosyncratic factors. We expect the Rupee to trade in an 84.50-87.00 range over the next 5 weeks or so.We are advising importers and exporters not to overhedge and also take into account possible temporary delays/business disruptions on account of supply chain impact, especially in North and West India.(The author is Founder and CEO IFA Global): Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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