Comparison with China
The Indian rupee can take comfort from the fact that the country has seen a growth in gross domestic product that’s higher than 7%. In fact, that’s the highest growth seen in a major emerging market economy. Foreign investors have been practicing risk aversion after the slowdown in China and the falling commodity prices globally. Tremendous outflows in the debt and equity markets have forced central banks in Asia and Latin American to intervene by easing their monetary policies and using their foreign exchange reserves to modify their domestic currencies.
One of the most eventful currencies in 2015 was the Chinese yuan, as the central bank of China (FXI) has been determined to intervene in the foreign exchange market. The People’s Bank of China devalued the currency to increase export competitiveness, thus creating a depreciation bias among emerging market currencies around the world. The weakness in the yuan is expected to continue as global demand remains slow and commodity prices continue to be sluggish. The e-commerce company Alibaba (BABA) has suffered falls due to the negative sentiment.
Comparison with Russia and Brazil
Russia (RSX), on the other hand, has allowed its currency to weaken to sustain export demand as commodity and crude prices plunge worldwide. The Russian ruble has been on a depreciating note for most of 2015. The gross domestic product for the third quarter showed a contraction of 4.1% in the economy.
Russia was plagued with low oil revenue caused by the supply glut maintained by the OPEC[1. Organization of the Petroleum Exporting Countries] and remarkably high inflation levels. The recovery is expected to be slow due to Western sanctions and sluggish growth in commodity prices, as both have hindered gains in the ruble. The Russian ADR[2. American depositary receipt] Mobile TeleSystems (MBT) has been trading on a negative note since the beginning of 2016.
The Brazilian real weakened to record lows against the US dollar in 2015. It fell due to investment outflows resulting from the domestic political crisis, economic contractions, as well as high inflation and low crude and commodity prices globally. Speculations about the impeachment of the country’s president, Dilma Rousseff, and whether she would be able to pass the crucial austerity measures created jitters among investors. The Brazilian ADR Petroleo Brasileiro Petrobras SA (PBR) has been on a falling trend this year.
Valuation for the rupee
The Indian rupee has crossed 2.5-year lows as the US dollar–Indian rupee currency pair crossed the 67 handle after the close of the trading session. Even through the Reserve Bank of India is intervening to control sudden depreciation in the rupee, the currency pair is expected to reach 68 levels as the lower base of the market shifts upward.
However, the movement in the pair is not expected to be on a one way course as growth in the manufacturing sector, tax exemptions by India’s prime minister for startups, and openness in terms of foreign direct investment in various sectors are expected to drive funds into the country.