Mumbai: A victory for Indias main opposition party in next months general elections is seen powering the rupee to highs last reached in 2008. Polls show Narendra Modis Bharatiya Janata Party is poised to oust the incumbent Congress party, a result that would be a catalyst for a long-term advance in the rupee toward 40 to 45 per dollar, from 61.19 on March 14, according to Adam Gilmour, Citigroups head of Asia-Pacific currency and derivatives sales. A weak coalition would be the worst-case outcome, he said, and might send the currency sliding beyond Augusts record low of 68.845. The market view is that if Modi gets in, it will be a game-changer, Gilmour, who has worked at the second-largest currency trader for two decades, said in a March 12 interview in Singapore. We always take politics with a pinch of salt, with the rare exceptions like India, where its going to really make a difference, he added. Opinion surveys Polls by Nielsen and the Centre for the Study of Developing Societies (CSDS) predict Modis BJP will win the most seats, while falling short of a majority in the lower house of parliament. The Congress party is projected to achieve its smallest-ever number of seats. The BJP and its allies will win as many as 232 parliament seats, 40 short of a majority, according to a poll released on March 6 by the CSDS. Election results are due May 16. The rupee lost about 28 per cent of its value from the end of 2010 through last year, making it the worst performer among 12 Asian currencies tracked by Bloomberg. The declines reversed when the biggest gold-consuming nation raised import tariffs on the precious metal, helping narrow the shortfall in the broadest measure of trade to a four- year low, and central bank Governor Raghuram Rajan increased interest rates to curb Asias fastest inflation. The rupee has rebounded about 13 per cent from its August 28 record, and remained little changed even during the rout in emerging-market assets earlier this year. Material impact The positive sentiment really comes from the new central bank governor, Andy Ji, a Singapore-based strategist at Commonwealth Bank of Australia, said last week in a phone interview. Hes had a more material impact on the rupee. Politics is just icing on the cake. For Citigroups Gilmour, politics, in the form of the elections that will be held across India from April to May, have the potential to affect the currency more than in most other countries. Narendra Modi, the chief minister of the State of Gujarat in the northwest of the country, has the backing of business leaders and equity investors. Billionaire Mukesh Ambani and Tata Groups former Chairman Ratan Tata have praised the 63-year-old politician, who has pledged to bring more investment into the country should he succeed in ending Prime Minister Manmohan Singhs decade-long rule. Rahul Gandhi, the 43-year-old scion of Indias foremost political dynasty and Congress vice president, has become Modis main opponent after Singh said in January he wont stand for a third term. Sell dollar A jump in the rupee to as high as 40 per dollar would represent a 35 per cent rally in Indias currency from the end of last week, and send it to the strongest level since April 2008. Gilmours prediction, for which he didnt give a timeframe, is five rupees higher than the most bullish forecaster in a Bloomberg survey of more than 30 strategists, whose median estimate foresees the currency at 63 on December 31 and at 58.50 by the end of 2016. These are good levels to sell dollars against the rupee, said Gilmour, 40. Waiting until after the election could be way too late, he further added.
Posted on: Sun, 23 Mar 2014 13:18:17 +0000
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