SGD INR: How does 2013 look like?

4 more days for 2012 to end and its a perfect time to analyse what would 2013 be like for the currency pair.

SGD-INR started the year 2012 at 41.28 and trades at 44.80 at the time of writing, a gain of 8.5%. The pair touched a low of 38.88 and highs of 45.11 during the year a volatility of appx 12%.

Let me take stock of how the past analysis has fared before delving into how the pair could move in 2013.

In the first post of the series on 2 Feb 2012 SGD INR What’s in Store for 2012 the recommendation was to convert to INR and invest in deposits. The exchange rate was 39.30 on the date of writing and my recommendation was to convert unless one saw SGD INR breaching the 45 mark.

The strategy was to keep converting and investing in NRE deposits as long as the pair stayed above the Implied Exchange Rate line.

The analysis showed that the pair would stay in the 38-40 range post the budget – SGD INR: Expected to maintain 38 – 40 Range post budget.  This held well for almost a month before the Rupee began its historic slide.

INR dropped all the way to Rs.57 against the dollar which resulted in SGD INR rate to touch the Rs.45 mark.

However even if one invested in INR the deposit would have grown to Rs.45 thereby resulting in an equilibrium situation. If one converted in June-July timeframe the growth would be even better.

In the past year SGD has strengthened against the USD and now trades at 1.22 mark. The Singapore monetary authority has let the currency appreciate to control inflation. However the latest Inflation figures are lower than expected which would allow room to let SGD weaken a little which would benefit exports.

The Key Factors for 2013

  • Major banks have predicted the SGD to strengthen to 1.18 against the USD
  • INR would gain against the USD if India continues with retail reforms
  • The RBI is expected to cut the Interest Rates in March 2013 to balance growth with controlling inflation

Impact on SGD INR

Assuming that INR stays at current level and SGD appreciates to 1.18 the SGD INR would reach 46.44. However if INR weakened say back to RS.57 and SGD moved to 1.18 the rate would be 48.30.

On the other hand INR appreciation to 52 would result in 44 with SGD at 1.18 and 42.6 with SGD at 1.22 to the USD.

SGD INR 2013 projection

The Implied exchange rate for SGD INR would touch 45.14 by 30 June and 47.45 by the end of 2013.

So here is my strategy

I would continue to invest in INR whenever the Actual Interest Rate is more than the implied exchange rate by atleast Rs.1. Money invested at 9.5% at todays rate would grow to 49.25 by end of Dec 2013 whereas the max exchange rate based on factors discussed above turns out to be 48.30.  NRE deposit would yield additional 2.5% over maximum expected exchange rate.

For those who have better risk appetite could invest in the Indian Equities which are expected to offer good returns with RBI and Government expected to take measures that would promote growth

I expect the exchange rate to be be between 42 – 46 with a downward biase. The pair has made multiple attempts to breach 45 but not managed to stay above the mark.

However if you wish to keep money in SGD and want a liquid, near risk free asset then the Nikko AM SGD Money market fund is a good choice. It has yielded 2-4% in the past few years.

Happy Holidays!!

p.s. The above strategy is targeted for people who ultimately want to transfer their earnings to INR. The transacation costs would reduce the net diffrential yield for someone actually transferring money in and out of India.

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