SGD INR – What’s in store for 2012

2011, what a year it has been for the global markets and SGD INR has been a party to it. The pair started the year at 35.10 and finished at 40.74 a rise of 16%. However the pair has resumed the downtrend and is trading at 39.30 as I write – a drop of 4% from the year-end close.

Let me highlight how the past analysis has fared before delving into how the pair could move in 2012.

In the first post of the series on 23 April 2011 SGD INR – Has anything really changed the recommendation was to convert to INR and invest in deposits. The exchange rate was 35.50 on the date of writing and my recommendation was it could touch 36.5. this target was achieved on 30 May 2011.

The pair continued to move along the interest rate parity line and Tax Adjusted rate line for next 6 months before Rupee began its downslide in Sep 2011 due to weakening economy, uncontrolled inflation and financial turmoil in the global markets.

As Rupee slid from 48 to 54 against the US Dollar (USD) in the next three months its slide against the Singapore dollar was 37 to 41 – drop of 10% against either currencies.

When SGD breached 39 the prediction was for it to ride the momentum and cross 40 SGD Breaches 39 mark, Eyeing 40.

The prediction came true and Rupee went all the way to 41. In the post on 27th Nov 2011 the prediction was made for a pull back with pair ranging between 38.75 – 39.06 40 breached, What’s Next  which is on track as the pair is moving towards the 39 mark.

In the mean time a very interesting development happened as Reserve Bank of India (RBI) deregulated the NRE deposit rates to boost foreign currency supply in the market Now NRE Deposit yield 9.25%, and yes its Tax Free.

Having looked at all these factors here is my take for 2012 (stay tuned for updates every quarter, its very difficult to take a long term view in such volatile markets)

  • INR should strengthen against all currencies and SGD would be no exception.
  • On an Interest rate parity analysis SGD converted to INR and invested in an NRE account would grow to 43.25 in a years time at todays conversion rate of 39.5. The Rule I follow is to convert whenever the actual rate is above the implied rate line
  • With NRE deposits becoming tax free repatriating money in and out of India is easier
  • With Rupee strengthening the gains should be compounded for any investments made in INR

So unless you feel that SGD is headed towards a Rs45 mark in the next year investing in INR is sure to yield good return.



44 thoughts on “SGD INR – What’s in store for 2012”

  1. My suggestion as always remains to invest in FD…your cash outflow is fixed.

    Investing in property means registration cost etc. Investing in stocks has its own fluctuations, Bullion moves along with international markets…

    Even if you went in for a riskier investment the additional gain would be at max another 5-6% with the risk of loosing capital…the question is that extra return large enough for the risk you would take


  2. Yes you are right. That was the idea suggested to me by the bank. However I agree with the views expressed. FDs may be a better idea after all.

    How about investing this 30 lacs somewhere else at higher returns and taking a home loan at 10.5%? Couple of big banks told me that they won’t fund house construction and only interested in funding flat / property purchase.


  3. Assuming that you want to pay for loan using a overdraft on your Bonds the numbers dont look great:

    Say you invested 30 lacs in a 9% bond for 1 year your tax free earning is 2.7 lacs

    To pay loan you take overdraft of 3 lacs every month for 8 instalments your interest outlay assuming you pay the overdraft with maturing bonds would be 1.85 lacs. Also assuming that the remaining 6 lacs you can pay from somewhere else and wait for bond to mature. your gain is 85,000

    Alternatively putting money in FD’s for maturing every month (variable interest rate between 5.5 to 8.5%) you earn appx 119,000 pre tax ~ 83,000 post tax.

    The differential is 2,000 and there is the risk of change in the price of the bond assuming you are getting one from market. Add the brokerage cost and depository fee etc and there idea is at best at par with the FD’s


    p.s. all calculations are based on quarterly compounding interest rate


  4. Hi A, thanks for your views. I understand gold is volatile, however its mid to long term view for me is good. But, I am balancing out things with my exposure to gold limited to 200 gm (in biscuits).

    Further, I received this suggestion to best deploy my 30 lacs ensuring:

    1. capital protection
    2. decent returns
    3. utilisation of money instead of lying in cash
    4. liquidity – easy to take out money and keep making payments for the house

    I was advised that I should invest 30 lacs split in 2-3 bonds for taxfree income, and bank will give me an overdraft / loan facility of upto 80% of that invested amount. While bonds return would be 9 odd %, the loan will cost 12 odd %. But as the interest would be charged only on the amount I draw, in the end, I’d still get some return on my money.

    How does this compare to the idea of doing multiple short-term FDs and ensuring that funds are available for monthly payments which are routinely required for house construction.

    Views of all are welcome!


    1. I am not sure what the strategy here is but looks like the idea is to invest in bond and take loan against it to pay for house installments. Am I right or missing something?


  5. Thanks A.

    Another idea is to invest in gold bars. It is risky, but here is my calculation:

    Purchase 100 gm coin of 24 kt @ ~3300 per gm (assuming 3025 per gm 22 kt as per yesterday’s price at tanishq + making of 100 per gm (tanishq rates) + 1 % tax. Coin price = 3,43400. Now, it makes sense to sell-back to tanishq in short term only if the appreciation in gold price exceeds 7% (3% making charges, 1% tax, 3% for getting cheque refund from tanishq instead of buying equivalent amount of jewellery from them – 97% offered by tanishq for liquidating the gold coin with a jeweller is the highest).

    Now the question is, would gold prices see 7+% appreiation in near future of 3-15 months? Ofcourse, there are rumours about prices touching 4000 for 22 kt by diwali / end of year, however market has remained more or less around 3000-3100 for 22 kt recently. Prices need to increase to 3240 for 22 kt and 3540 for 24 kt, which is not far-fetched, but risky. Maybe, there is scope for 20 odd % to be put in gold out of the total I am talking about.

    What’s your take on this, people?


    1. Hi Vanya,

      This is stepping into speculative territory. As much as people like to believe gold is risk free, its not. If it can rise by 7% then it can fall by 7% as well. There is no capital protection.

      The gold price in India is a factor of gold prices internationally and usdinr rate. Only if both factors move in upward direction then a 7% gain is possible. Indian govt has been trying to stall the depreciation of rupee so from how I see is that only if gold crosses 1900$ in international markets a gain is possible.

      If you are in Singapore or visiting soon I can direct you to places who would sell 24kt 100gm bar for appx 310,000 Rs at today’s rate. These are certified bars guaranteed for purity and fetch a premium in Indian markets.

      Even if you add 4% duty on bringing gold into India its much cheaper than what tanisq sell


  6. Aditya, sorry, forgot to specify I am no longer an NRI, so taxation issues would be different on the FDs and other returns etc, assuming normal salaried employee status in highest tax bracket.


  7. Hi Aditya.

    Managed to remit majority with rates of ~43.6 this week. Last tranch is still to go – would see if there is any possibility of an upswing, else will track closely and remit if it goes down to 43.

    Any inputs shall be welcome on how to best put close to 30 lacs to use. I would need the same in monthly installments of 3 odd lacs per month starting Jan 2013. So need to figure out short termm investments liquid / maturing after 3 months till 15 months, on a monthly basis.


    1. Hi Vanya,

      Investing in FD’s maturing every month for next 15 months is the simplest way to manage cash flow. You can choose maturity dates say 2 or 3 days before the payment date. The interest of course would be taxable in this case.

      The second option would be to invest in FMP (fixed maturity plans) these though attracting lesser tax cannot be timed like FD’s

      Third option would be a mix of FD and FMP, FD for short term and FMP for 1 yr or more….long term FMP would fall under long term capital gains and be tax free.

      Hope this helps


  8. Actually Debt fund is also better option than FD if someone has little risk appetite left 🙂 ..
    they too are tax free and 100% repatriable.


  9. Yeah MAS surprised all of us by not changing their SG$ NEER policy…
    Nevertheless, since QE3 is effective from oct, and considering RBI to take calibrated risk 🙂 on oct 30, i think it should be in range of 43-46… on the other note if RBI reduces interest rate then we can expect rupee to get stronger…. Also QE3 would reduce USD value and sgd follows usd as we know…


    1. Its very difficult to predict what the central banks are going to do. On top of that market movements, demand and supply, are equally unpredictable. From a strategy perspective investing in NRE deposits is beneficial. Will share the tax adjusted exchange rate chart soon…its use full to decide if the pair is overvalued or undervalued on interest rate parity basis


  10. Quantitative easying announcement would be this week by MAS, so low chances for sgd to be strong. but I agree for next 2 weeks it would be in the range of 41-43, lots of things happening this month, including RBI meet on Oct 31. Hoping below 41 by 1st week of Nov.


  11. Thanks Aditya!

    I am feeling so bad that I did not capitalise when SGD INR hit 45! 😦

    Guess I should just pull out the SGD asap. Any forecast outlook on next 1-2 weeks? OR ASAP is advisable?


    1. Hi Vanya,

      Its very difficult to time the market, I don’t think the SGD INR would drop much from here in next 1 or 2 weeks.

      My recommendation would be to transfer money in chunks of say 10k over next few days so that you can average out your nett rate.



  12. Hi Aditya,

    I have close to 60k sgd which I have to use for house construction purpose AFTER one year. Given SGD-INR is already down to 42.4 today down from ~46 levels in near past, should I hold on to SGDs for few more months (can hold upto one year) and convert later, if it is projected to touch 45 levels again? OR should I just convert now before it drops below 40?


    1. Hi Vanya,

      Will SGD touch 46 again is a very difficult question to answer but I can give my views on how you could plan for your house cash outflow.

      You should convert now and invest in nre FD for 1 year. At the rate of 8.5% your money would grow to a exchange rate equivalent rate of 46.11.

      This way you get peace of mind and not keep hoping exchange rate increases.

      Hope it helps.


  13. Hi Aditya,

    I have 25k reserves of SGD in singapore bank and i have moved to India.

    Sooner or later, I will be moving all my reserve to India.

    Can you please help me in deciding the lower and the above cap for the SGD-INR pair. i was targeting 44 for the cap and 42 for the floor.

    Any suggestions will be very helpful.



    1. Hi Hitesh,

      I think any rate above 43 is a good point to convert. Given the quantitative easing and hope of reforms in India the currency would only get stronger. I would not be surprised if the SGD INR hit 40 mark



    1. Hi Shashank

      The complete inaction on part of the Indian govt and policy makers have resulted in such a steep fall in the Indian Rupee

      I must say this has completely surprised me though I do believe that investing in India from a long term perspective still makes sense.

      Its a nation of over a billion people with huge consumption potential

      On the other hand SGD has depreciated 6% against USD as well so its not really a safe haven. My take is that max rupee could fall is 46 against the SGD


  14. With the last few days of change in SGD INR almost 38 now, where do you think it will land? Does it look like it will go lower in the immediate term . I noticed while INR/USD didnt really move much, SGD/USD depreciated quite a bit.


    1. Hi Ajay,

      I do not see it breaking the RS.38 mark, ofcourse there would be intraday fluctuations and odd days where the pair flirts with the RS.38 mark but for Q1 I see it hovering in the 38 ~ 39.75 range. If you are looking to remit then any rate above 39 is a good one to consider.


      p.s. Will try to put up a feed on what the Implied Exchange rate for the day on the blog


    1. As far as I know non offer there service to retail clients, however you could try which has a usd/inr spot pair that can be used for a Carry trade


  15. @Aditya I’ve indicated the exchange rate offered by Money2India only 🙂 There’s a slight improvement today in the ex.rate.


    1. Hi Sudhakar,

      SGDINR is above the 39 mark in the interbank market, if you were getting 38.61 on conversion its time to use a different money transfer service :), online services usually take a 0.75% cut from the interbank rate. In my experience money2india offers better rates than remit or SBI.



  16. Hello Aditya, good observation. Do you think this is real in reality? “With NRE deposits becoming tax free repatriating money in and out of India is easier”?


    1. Hi Puay Lin,

      Yes NRE accounts do allow tax free returns but are only for Non Resident Indians . Other factors are minimum one year lock in a fixed deposit and bank charges in form of spread when converting money into and out of the account.


    1. Hi Aman,
      A level of 36 looks unlikely, Greece is still in trouble and both SGD and INR would be impacted by any default. I would put my money on a range of 38 ~ 39.75


  17. Hi Shailendra,

    The yield of 9.25% is available by depositing money in a few banks like HDFC, details on interest rates were analysed in the post –

    As with USD I believe it will remain currency of choice in near future (throughout 2012) as some shift happens towards Yuan. How Rupee fared against the USD is detailed in the post –



  18. Interesting observations and prediction. Although to add on, the CRR rates were cut by 50 basis points last month and also there is a catch, the yield of 9.25% on tax free returns for NRE deposit is pursuant to a threshhold limit of deposit set by the banks and not a blanket yield on any amount.

    What would be your take on the USD?


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