Rupee May Weaken to 67/Dollar in One Year: CLSA

The Indian rupee hit a low of 63.64 per dollar on Friday, a level last witnessed in December 30, 2014. It closed at  over 3-month low of 63.56 against Thursday's close of 63.32.
Analysts say a selloff in equity markets is weighing in the rupee. The BSE Sensex has posted triple digit losses in six of the previous seven sessions, primarily on account of selling by foreign institutional investors, who have been hit by tax demands for capital gains made during previous years.
"There is demand for dollars as foreign institutional investors have been selling stocks," said NS Venkatesh, head of treasury at IDBI Bank.
Foreign institutional investors, key to the fortunes of domestic equity, poured $50 billion since last May, when PM Narendra Modi was voted to power. However, FIIs have aggressively sold shares in the cash market over the last few sessions. They have also reduced their exposure in Indian bonds, which has led to dollar outflows and pressured the rupee.
Rising trade deficit, which hit a four-month high of $11.79 billion in March, is also weighing on the rupee, analysts say.
Finally, a strong dollar continues to pressure global currencies, including the rupee.
Where is the Rupee Headed?
Most currency analysts say the rupee is overvalued and is hurting India's exports and contributing to rising trade deficit.
In the near term, a weekly close above 63 per dollar could be negative for the rupee, analysts say. Mr Venkatesh expects the rupee to trade in a range of 62.90-63.40 per dollar in the near term. He says there is no imminent danger to the rupee because India's economic fundamentals and forex reserves are strong.
"The rupee is unlikely to depreciate substantially because macroeconomic fundamentals of the country are very positive," he added.
The rupee is expected to depreciate substantially in the medium to long term. CLSA's Senior Economist Rajeev Malik expects the rupee to gradually depreciate to 67 per dollar.
"Gradual rupee depreciation has been our view for quite some time... the rupee is overvalued, which is inimical to the government's agenda of boosting growth," he added.
According to CLSA, strong foreign fund flows have been the biggest factor that has contributed to a stronger rupee.
"Even our sense is rupee going to 67 over next year and half is not outlandish at all," Mr Malik said.