According to a report by financial and business research firm Evalueserve, there will be pressure on the Rupee unless steps are taken to fix certain structural issues like high current account deficit and dwindling investments.
The move could streamline capital flows and help finance current account deficit
Gold prices had touched the all-time high of Rs 32,975 per ten gms on November 27, 2012.
Surrendering most of early gains, the BSE benchmark Sensex was quoting higher by 26 points in the late morning trade on Wednesday on persistent buying, mainly in realty, metal, banking and consumer durable sectors.
'For the next two years, we expect the bulk of earnings growth contribution from sectors like financials and energy, where the outlook remains positive, while the sectors which are linked to domestic consumption and are currently witnessing strains on margins have low salience for Nifty earnings.'
The government is preparing to bite the bullet, with partial decontrol of diesel prices after the Presidential election on July 19.
Crude oil prices have more than doubled, pushing up India's import bill and raising fears of a higher current account and fiscal deficit. This will impact corporate earnings.
While Goldman Sachs says India will see a transition, HSBC feels structural imbalances will lead to cloudy outlook for markets.
Higher food prices can accelerate broader inflation by pushing up wages, while negatively impacting the government finances and reducing monetary policy flexibility, Moody's said in a report.
Meanwhile, Wholesale Prices Inflation (WPI) numbers which were announced on Thursday, accelerated to an eight-month high of 7.0% in October.
Oil and gold had accounted for 45 per cent of India's imports bill in 2012-13.
The outlook cut is based on a weak premise since the economy is expected to rebound this fiscal but a wake-up call was needed.
In order to check rising current account deficit, the government had raised import duties on the yellow metal to 10 per cent while Reserve Bank of India imposed curbs on import of gold and also laid down various pre-conditions for inward shipments of the precious metal.
The agency has also retained 'stable' outlook for the country's ratings.
If inflows continue, some experts see rupee touching 55 to the dollar, in the near term.
Gold imports in 2011-12 amounted to $56.5 billion and in the current financial year, till December, they are estimated at $38 billion.
The International Monetary Fund chief economist-designate Raghuram Rajan feels big deficits -- whether India's fiscal deficit or the United States' current account deficit -- are not sustainable in the long term.
The prime minister made a reference to orderly exit from unconventional monetary policies in the backdrop of splits between emerging markets and the US.
Mass downgrades of GDP projections make it likely that there will be another wave of FII selling fairly soon
HDFC has declined by over 7% and is the top Sensex loser.
India's foreign reserves continue to march to record highs, touching USD 393 billion early this month backed by strong foreign portfolio and investment flows, according to Development Bank of Singapore.
The Indian economy is projected to grow at 6.3 per cent in current financial year aided by investment and domestic demand. According to a World Bank report released on Tuesday, India continues to show resilience against the backdrop of a challenging global environment. In India, which accounts for the bulk of South Asia region, growth is expected to remain robust at 6.3 per cent in 2023-24, India Development Update of the World Bank said.
The five policy missteps that have led India to economic crisis.
Finance Minister Nirmala Sitharaman on Monday said the government estimates fiscal deficit of 6.8 per cent of the gross domestic product (GDP) in the next financial year beginning April 1. However, the fiscal deficit in 2020-21 is estimated to soar up to 9.5 per cent due to rise in expenditure on account of the outbreak of COVID-19 and moderation in revenue during this fiscal year.
The broader markets ended lower with mid-caps and small-caps falling over 1 per cent on the BSE.
Identity of next central bank chief remains a matter of speculation.
PM attributes the rupee decline to widening Current Account Deficit and global factors.
Indian exporters on Monday said the fluctuating rupee will not only raise imports bill but would also lead to volatility affecting their businesses.
Reserve Bank Governor Shaktikanta Das on Wednesday said in the wake of appreciating US dollar, the movement of rupee has remained least disruptive as compared to its peers, and the size of foreign exchange reserve is comfortable. On a financial year basis (from April to October 2022), the rupee has appreciated by 3.2 per cent in real terms, even as several major currencies have depreciated, he said while announcing the latest set of bi-monthly monetary policy. "The story of the rupee has been one of India's resilience and stability," the Governor said while pointing out that the appreciation of the US dollar this year, which precipitated large-scale depreciation of all major global currencies including the Indian rupee, has drawn wide attention.
For returning to trend growth of over eight per cent GDP growth and sustained low inflation of four per cent, removal of supply-side constraints and investor-friendly policy reforms are key, says Rajesh Cheruvu, Chief Investment Officer, India, RBS.
The rupee has been on northward-ho since July, after hitting a life-time low of 57.13 mid-June. Since the beginning of the year, the local currency has gained over 7 per cent, and still it is down 18 per cent from its pre-August 2011 highs.
Despite the rising prices, the gold demand has grown steadily in the last decade except for the last two years.
Government and Reserve Bank to take steps to arrest the fall of the currency.
There were also concerns over whether a depreciating rupee would increase the fiscal deficit by increasing expenditure on subsidies and jeopardise the repayment schedule for external commercial borrowings.
For all the worries among investors and policymakers over the rupee's sudden plunge to record lows, the Indian economy is in better shape to handle a depreciation than it was when the currency last hit the buffers a year ago.
The rupee on Monday plunged by 48 paise to hit its life-time low of Rs 57.54 in early trade on heavy dollar demand and the US currency strengthening against major rivals overseas.
If the administrative/regulatory/judicial logjam can be loosened, there could be a quick yield in higher output, which would have multiplier constraint-loosening effects on the economy as well as lead to higher savings, a critical prerequisite for reducing the domestic savings-gap and thus help reduced the unsustainably high CAD.
The majority view remains for the central bank to leave the cash reserve ratio unchanged at 4 per cent.
Delay in the tapering of the $85 billion-a-month bond buyback programme by the US Fed (tapering will start from January 1) gave the country time to replenish the forex reserves and rein in the high current account gap.
Despite a high current account deficit (CAD) and lower interest rates abroad, the Union government will not go for a sovereign bond issue to get more dollars.
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