00:00 Anandia Banerjee, Head of Research, Currency and Commodity Derivatives of Kotak Securities
00:04 now joins in.
00:05 Anandia, thank you.
00:06 Morning.
00:07 Thanks a ton for joining us.
00:08 Anandia, what we saw on Friday was dollar strength, year-end demand by oil importers,
00:15 higher crude prices, some outflow from the equity markets and surprisingly no intervention
00:21 from the RBI.
00:22 So most of this was business as usual.
00:26 Was there anything peculiar about what we saw in terms of trade on Friday and what we
00:30 are currently seeing in the dollar-rupee pair or this doesn't seem too concerning at this
00:34 stage?
00:35 Yes.
00:36 Actually, it is the final two weeks if we start looking at the market from last Friday,
00:44 the final two weeks of the financial year.
00:48 There are some weird moves because we tend to see a lot of sudden demand or sudden supply
00:55 and that tends to create a lot of fluctuation in the market like we saw.
01:00 Yes, along with that, what happened was the market was extremely short because for 18
01:05 months, if you look at the volatility of USD/JPY, it has plunged to the levels we had seen in
01:11 2002.
01:14 So you can imagine two-decade low in volatility.
01:17 So it had created a significant amount of complacency and shorts in the market.
01:22 So on Friday when USD/JPY started to move higher due to the global cues and RBI did
01:28 not come in to intervene, we saw that kind of a short covering which especially started
01:33 around 3 o'clock and continued till 5.
01:37 And today, once that short covering is done, you have seen a gap down open.
01:42 But we will see the volatility continue over the next three trading sessions, including
01:48 today because today is the last spot date of the financial year and we could see some
01:53 kind of exporter selling coming into the market.
01:57 So this is more of a year-end phenomenon.
02:00 Okay, let's talk about going ahead and what this really means in terms of what is the
02:05 demand for hedging really been.
02:07 Forward premiums have also gone up from what I understand.
02:09 Where is the demand coming in from importers or exporters?
02:12 What I want to gauge from you is in the medium term, do you see strength returning back to
02:17 the currency and hence in that case, are importers going naked, exporters hedging?
02:22 Give me a picture of what's happening.
02:24 Sure.
02:25 See, the hedging activity what we have seen over a long time is a function of uncertainty.
02:32 The higher the uncertainty, the higher the volatility, the higher is your demand for
02:36 hedging, both from the importers and exporters.
02:39 The importers will always talk about the high forward premium, why they should come and
02:43 hedge by paying the forward premium.
02:45 And for the exporters, it makes sense to hedge if they see the rupee appreciating.
02:49 So what has happened over the past 15 months is that the compressed volatility has kept
02:55 the hedging away.
02:58 So basically we are seeing hedging, but it is always lower than usual because people
03:04 are more comfortable selling on the spot than trying to use forwards to hedge.
03:08 Some bit of long-term effects hedging has happened because of a decently high forward
03:13 premium, but if you talk about the hedging in the near months, that has been low and
03:21 that's not going to increase until and unless the volatility comes back.
03:25 Now going forward, especially looking at the next three months in the first quarter of
03:31 the next financial year, there are factors like the increase in the flows in the debt
03:37 market, that's going to happen now because of the inclusion process starting in the JP
03:42 Morgan bond index.
03:43 So we'll see increased flows of FBIs in the debt market.
03:48 The equity flows are choppy, but at the same time we could see the dollar strengthen internationally,
03:55 especially if the April inflation data that comes out higher than expected.
04:01 If that happens, we could see the US bond yields rise and that could push the dollar
04:04 higher.
04:05 So on one hand we have the debt flows, which is going to be positive for the Indian rupee,
04:11 but on the other hand the global Q's is going to be negative for the Indian rupee.
04:15 So we could see more of aтАж
04:17 They usually and historically and for whatever it's worth, the RBI usually takes a cue
04:23 from the Fed and moves on rates.
04:26 This time there might be a little bit of an anomaly because we've already seen some
04:29 of those, I mean Switzerland has gone on and cut rates, there was expectation some other
04:33 countries may follow suit.
04:35 Despite the rate differential impact, what is the currency market currently anticipating?
04:40 Are they working with the rate cut irrespective of what the Fed does?
04:44 No, the first move is expected from the Fed because the Fed is expected to cut from June
04:50 and the market is not anticipating any move from RBI from now till June at least.
04:56 So RBI will be following the Fed.
04:59 Yes, the expectation is that the inflation is going to come down over the second half
05:06 and that may push the RBI to cut more, but it's going to basically follow the Fed.
05:12 Okay, Anindya, we'll leave it at that.
05:16 Thanks for this very quick perspective, really really appreciate your time and at the last
05:21 moment as well because you kind of, we approached you late, but thank you so much for agreeing
05:25 to do this.
05:25 Thank you.
05:26 Thank you.
05:27 (dramatic music)
05:30 [music]
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