Experts speak on rupee hitting 7-yr high - Moneycontrol.com

Sanjeev Sanyal, Regional Economist of Deutsche Bank Asia says that whole rupee appreciation is being driven by the liquidity squeeze that is happening right now and calls it a year-end phenomenon. Akhil Jindal, President of Welspun India says that there is no point in keeping any currency open at any juncture but at the end of the day the currencies across the globe are appreciating against rupee.

Excerpts from CNBC-TV18's exclusive interview with Sanjeev Sanyal and Akhil Jindal:

Q: The Bernanke statement yesterday was interpreted by the market to mean slightly more hawkish than what it was prepared for and in India itself we are seeing the RBI using a money market route and that has kept the dollar much cheaper than one anticipated. Where do you see the dollar-rupee headed in the next one quarter given the moves from the two central banks?

Sanjeev Sanyal: This whole thing is being driven by a liquidity squeeze, which is happening right now. One must remember that this is a year-end phenomenon. There are longer-term issues as far as inflation is concerned, because of which the RBI had tightened. But remember that this particular episode is being exacerbated by year-end factors as well. So into the beginning of April this will ease off.

The Reserve Bank is at the end of the day not all that pleased with the rapidly appreciating rupee. They had been intervening throughout and even now they continue to accumulate reserves. Another thing going against the rupee right now is the fact the Reserve Bank is concerned about long term competitiveness issues. Given these two facts we think that once this episode is over the pressure on the rupee will ease off.

Q: We also see that the current account deficit is worsening with each quarter. But given all that we are seeing a genuine appreciation of the rupee happening, what really is your target for the rupee a quarter down the line and maybe by December 31?

Sanjeev Sanyal: Its difficult to put numbers on quarter by quarter but generally speaking we think that the rupee once this particular episode is over will probably stabilise and in fact even drift weaker, the current account continues to worsens. There are very large capital inflows coming into the country, which is pushing it up. But at the same time it is also being helped by the fact that other Asian currencies are appreciating against the dollar. So this is not just about the rupee appreciating but also about the dollar depreciating.But all put together the fact remains that the longer term competitiveness is something that we have to keep in mind.

Q: The rupee has gone from 45 to 43 over the last one month. Do you hedge and how much of a hit has this actually accounted for in terms of the end towards the last part of this quarter in terms of earnings that you would report?

Akhil Jindal: We always keep our currency fully hedged; there is no point of keeping any currency open at any juncture. But the point that my colleague from Deutsche has made is that at the end of the day the currencies across the globe are appreciating against rupee. Particularly when we have to compete against China, which have a very artificially pegged currency, if Chinese currency is allowed to float the way it is in India, it would easily appreciate by more than 30%.

So one can really figure out that at the end of the day if we have to preserve the competitiveness of the industry, we have to preserve the export going up, then in that case we need a complete sterilization as the way RBI is doing it. At the end of the day we must also remember that textile is one of the largest export provider or foreign currency earner and Welspun with its own product line has emerged as a 7th largest importer in the US from the entire world.

Q: If the dollar remains firmed, how much will your realizations be hit by?

Akhil Jindal: Nothing in the immediate future because every realization has been pre-sold, every dollar has been already sold for the next 6-9 months. But it affects our long term competitiveness if we are booking any order for mid of 2008. We have to look into the current exchange rate other than the rate at which we have booked.

Q: Could you on a more academic note tell us if the rupee appreciates by about Rs 1? How much of a hit is that in terms of earnings per share and profitability?

Akhil Jindal: Its again difficult to quantify. It all depends upon the hedging at that point of time.

Q: How much are hedged at currently?

Akhil Jindal: We are hedged at 44.5.

Q: In the light of that with the rupee at close to 43, how much of a hit would it take at EPS?

Akhil Jindal: It will only contribute to the EPS because at the end of the day all our dollars realisations are at 44.5. So to that extent we are protected from this sharp movement that has taken place over last 15 days or so. Once the currency comes back to its original level which is at 44 around we will be in the safe zone.