News

      NEW DELHI, MARCH 30: ALREADY reeling under the impact of dismal overseas demand, exporters now have to deal with the strengthening rupee as it inched closer to Rs 45 a dollar on Monday. The rise has been attributed to foreign flooding the country’s stock markets.

     To bring about some regulation in the FII inflows, the President of Federation of Indian Export Organisations (Fieo), Mr A. Sakthivel, has written to the Finance Minister, Mr Pranab Mukherjee urging him to create a lock-in period of two years. The Fieo chief feared that if the FII inflows continued unabated, exporters alone would face the brunt of it.

    So far this month, FIIs have pumped in nearly $4 billion, which is the second-highest monthly net flow ever, according to the Securities and Exchange Board of India (Sebi) data.

    Despite a large number of domestic fund managers feeling that most of the quality stocks are fully valued at the current levels, FII fund managers have been pouring money into the country. Such dollar inflows have helped the rupee to strengthen.

    “Those sectors that would be the worst hit are the ones not dependent on Imports for raw materials,” the Director General of Fieo. Mr Ajay Sahai, said.

     He identified textiles, carpets, leather and marine products to be the worst hit,

         Sectors like gems and jewellery would not be impacted too much because they would mard up the appreciation by  importing raw materials.

        Since the rupee is apprect ating, exporters will have to sell products at even higher prices. In fact, exporters say that if the government does not intervene, they would lose out heavily to their chinese counterparts.

     Since china has artificially kept its currency come at a much cheaper tate to consumers in the West vis-a-as indian products.

     Standard Chartered Bank has projected that rupee will strengthen even further in the months  ahead. By December 2010 the bank has stated that the rupee may be around Rs 42 to a dollar.

     “We have taken FIIs and FDI inflows into consideration before reaching this figure. Since we are withnessing an increase in FII inflows, the  rupee is expected to harden even more in the months ahead,” Mr Anubbuti Sahay, analyst with standard  chartered, said.

     On the other hand, a commerce Ministry official stated that the appreciation of the rupee was so far not a cause for concern since in 2008 the rupee was hovering at Rs 40 to a dollar He pointed out that  the exporters were used to a strong rupee, but admitted that if the rupee but strength ened more of it could create some temporary hardships for the exporters

     “The economy has been growing at healthier rate relative to other economies and Indian financial market has been deep and liquid. This has resulted in a robust inflow of foreign capital into county. Inturn, this has led to appreciation of the rupee,” said Mr N.S. Kannan of ICICI Bank .

      Top bankers now feel the trend will continue, helping the rupee to rise further from the sub-45 level.

       Some days ago, the dollar was strengthening against other currencies, but the rupee did not weaken against the dollar, pointed out another banker.