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Rupee may continue to gain till election result

Deutsche Bank is also optimistic about the growth outlook for Indian economy.

, ET Bureau|
Updated: Apr 10, 2019, 08.41 PM IST
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The rupee generally tends to do well heading into an election quarter.
Mumbai: The rupee might continue to appreciate against the dollar till the elections are over, as historical evidence shows that the currency generally tends to do well heading into an election quarter, according to a report by Deutsche Bank. But it might depreciate after that, it said. The rupee however might not be as volatile as it was last year.

The rupee generally tends to do well heading into an election quarter, but depreciates in the immediate three month period following the election quarter, according to the Deutsche Bank analysis. The rupee generally tends to depreciate again after elections. If election outcome is in favour of the ruling alliance, then there could be a steeper appreciation until end May. But the Reserve bank may buy dollars to prevent steep appreciation of the rupee.

“Once the election news gets internalised, rupee will likely reverse course in July September to end the year around 72 levels, as per our forecast” said Kaushik Das,chief economist at Deutsche Bank. “ FIIs momentum may slow down which could trigger a reversal in the rupee’s momentum after the election outcome. If there is positive outcome-assuming NDA is back to power, then positive election related flows could offset negative oil related outflows if oil prices move above $ 70 a barrel”

Its view on the rupee is broadly consistent with the trend in FII flows. The last three elections have seen FII flows surge, the pattern of lows have varied. While during 2004 election, flows moderated prior to the elections, but surged after the elections, in 2009 and 2013, FII flows were pretty strong in the run up to the elections and remained buoyant after the election as well. The Deutsche Bank report points that in the current cycle, FII flows, particularly that of equities started improving from February and accelerated in March as well.

In the coming quarters FII inflows would be a function of many factors including crude prices, interest rate differentials between emerging and advanced markets, growth differentials and geo-political uncertainty among other, past trend in FII flows around election period provides a scope for optimism it said.

Deutsche Bank is also optimistic about the growth outlook for the economy and expects the economy to grow over 7 per cent despite risks of a slowdown. “India might still outperform other emerging market peers even at the risk of a global slowdown as it has a strong domestic demand and it will have a specific positive story due to election related positives.”
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