Mahesh Nandurkar of Jefferies says Forex cover has dropped to a 9-month low, and would likely be going towards 7.5 months over the next 2-4 quarters as per Jefferies & this will be similar to the 2011-12 period. He adds to CAD today is lower today 3-3.5% of GDP now vs 4%+ then & India’s relative growth trajectory is much better & domestic political environment is also much more stable & hence they do not believe that CY11/12-like 20% INR depreciation (another 20% is likely but having said that he says that ‘INR’ may not have bottomed yet.
As per Mahesh Nandurkar of Jefferies says that recent slump in exports, even as domestic demand stays high, has compounded to India’s FX worries. They at Jefferies estimate that CAD is likely to sustain in the 3.0-3.5% range, even as crude is now averaging ~US$90/bbl, 20% below Q1’FY23 average & FX reserves are already US$110bn lower from 12 months ago.
INR touched Rs83/USD recently and is down 11% Year to Date while INR performance has been weaker than certain Emerging Markets currencies (Brazil, Indo), it has done 2-5 ppts better than China, Thai and Phili, and also 6-11ppts better than EUR, GBP and Yen in 2022.
Overall, as per Mahesh Forex pressures has thankfully been unlikely to trigger an external debt issue for India, given the low levels of foreign borrowings. The Data as of Jun’22 show that India’s external debt to GDP ratio is low at 19.4% & even within that, only about US$129bn (4.0% of GDP) is the long-term non-financial corporate debt & the rest comprised mainly govt debt, trade advances and NRI deposits.
He says going by the 2012-13 example the govt may start imposing measures to improve the FX situation at to attract FX, measures could include special deposit schemes for Non-Resident Indians, raising FDI limits, support measures for exporters.