SGD INR: Post the Election Euphoria

Time flies and it’s already June – I can’t believe that the last I wrote about INR was in February and whole world was speculating on the outcome of the Indian elections. I did not expect the BJP to win with a full majority given the polarisation of votes, combined with regional politics and was expecting a hung parliament. 

Based on that I had predicted that the Rupee would fall back to the 63 mark against the USD and 50 against the SGD (SGD INR: A storm in making). However, to my delight, the BJP did get a full majority. This meant that the uncertainty of a hung parliament and issues cropping up from coalition government were instantly non issues.

The markets reacted favorably to a government formed by progressive and reform oriented leaders and pushed the Indian Sensex to all time highs of over 25,000 and Rupee appreciated quite quickly to the Rs.58 mark against the USD. With many a Indians residing in foreign countries who remit money to India the obvious question was – Is the rupee headed to 55 against USD and should I transfer money to India now?

My answer to many such questions was – “the fundamentals of the economy don’t change overnight just with a stable government and the real effect of policy changes would take months to materialise and I still expect Rupee to stay over the 60 mark against the USD”

One of the first places to start when looking at fundamentals is Implied Exchange Rate calculation. Over the past years the spot rate has tended towards the Implied Rate Line (chart below: using SGD INR)

SGD INR 2014

and the calculation suggests that the SGD INR would move back towards the upward trending implied exchange rate line as the RBI is going to hold the interest rates steady – the inflation is still alarmingly high.

Other factors that would be playing against the Indian Rupee would be:

1. Crop losses due to el Nino weather changes

2. Increase in price of crude if the tensions in Iraq escalate

3. Global slow down in the background Ukraine crisis and escalation in South China sea

As I write the Indian rupee has already crossed the 60 mark against the USD and 48 against the SGD and I maintain that the INR would move towards the 63 and 50 mark against the USD and SGD in coming months.

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9 thoughts on “SGD INR: Post the Election Euphoria”

  1. Thanks for your comment, Aditya. But taking into account falling oil prices, I think this is a big big positive for India and kind of neutral for Singapore. If you see the exchange rate movements in the last couple of weeks taking into account falling Euro, falling JPY, falling oil prices, rising USD.. the net effect has been resilient INR and shaky SGD, which is why I think, INR may not fall against SGD. Even today, if you look at INR it is 61.76 which is pretty bad rite, but look at SGD it is 1.298! its just moments before it will pierce 1.3!

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  2. Hi Aditya, I have been following your blog since 2009 and in those days you used to whole heartedly be in favor of converted SGD to INR. I wonder why you are so skeptical now, when the Rupee fundamentals are much better.

    Look at how much the SGD has fallen recently against the USD. My guess is next 5 year INR will outperform the SGD, even if it doesnt outperform it wont underperform like the last 5 years. I did some back of the envelope calculations. Even if you had tfr’ed SGD to INR 5 years back you are still in profit now considering the fixed deposit interest rates in India.

    My suggestion to everybody. Convert your SGD holdings to INR now! and lock in to NRE FD for 2-5 years while the interest rates are still high in India.

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    1. Hi Nitin, great to know that you have been following me. Thanks to support like yours I get inspired to write though must admit have not been that regular in the past few months.
      Converting to INR has always been a good strategy. The only reason I think there is scope for SGD INR going back to 50 is the strength of USD, which has shot up against all currencies. The Indian fundamentals have not really changed but there are hopes they would change with the new prime minister. Key would be RBI’s rate meeting in December.

      Cheers

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  3. Hi Aditya,

    Thanks for your response and time. Agree with you that we would not see any sudden change. However due lot of positivity shown in Indian market would eventually start appreciating INR. Personally my take away would be to closely moniter the market and of course your very informative and supportive feedbacks in this blog.

    Many thanks and regards,
    Deepak

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  4. Hi Aditya,

    What you feel about forex SGD INR in current situation where Indian govt. (BJP) getting more stronger post recent elections in Mharastra and Haryana ?

    Thanks for writing these blogs.

    Thanks
    Deepak

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    1. Hi Deepak,

      Having a stable government is good but the fundamental changes are still atleast 6 months away. Falling crude oil is a good sign but US would stop the QE pretty soon, maybe tonight.

      I dont see Rupee appreciating suddenly and govt and RBI would also like to keep it in predictable zone. I expect it to hover above 60 mark against the USD.

      cheers

      Like

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