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The Rupee Is About to Crush the Buck!

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The Rupee Is About to Crush the Buck!

Post by Sean on Tue May 27, 2008 8:02 am

Good day Currency Traders! Very Happy

In 2007, the Indian rupee was flying high. In fact, this Asian currency racked up a12% gain - that's a huge leap for any currency to make in just a year.

But unfortunately, things started to head south for India right around the beginning of the year. Just as we kicked off 2008, India's stocks started sliding and so did the rupee. The rupee has tumbled a horrid 8.7% in just five short months.
affraid
So why the sudden drop? One word: Sub-prime. What a Face

At the time, the sub-prime, credit crunch problems were still attacking the markets in full force. This caused "risk aversion" to set in around the globe. Suddenly, investors were dumping any asset they viewed as even remotely risky - including emerging markets. Investors the world over sold their Indian holdings and repatriated their money back home. That means they sold rupees and bought back into their home currency.

As a result, the rupee now sits at a 13-month low. But I believe that's all about to change - in fact, I believe the rupee is about to make a comeback tour.

After all, the worst of the credit crunch is behind us. Plus, the markets have had 11 months to get used to the idea of a sub-prime crisis. At this point, most of the sub-prime bad news has already been factored into both stocks and currencies.

I think you'll find that money will shortly start returning to India and its rupee in the months ahead.


The Second Fastest Growing Economy in the World - Right After China

How many countries can match India's impressive 8% growth right now? Answer: Not many.

Right now, India has the second fastest growth in the world (second only to China). Since 2003, India's economy has grown at 8.7% and their central bank forecasts that their economy will grow at 8.5% in the 12 months through March 2009.

It's estimated that Indian corporate earnings are growing at an average of 20% a year. Notice they said "average." That means some corporations' earnings are growing much faster.
I believe you'll see money return to the Indian stock market from foreign investors just as soon traders feel the coast is clear. I think you'll see this happening in the upcoming months.

In fact, some of the major Indian manufacturers are already predicting a huge comeback for the rupee. JSW Steel, their third largest steel maker, predicts that the rupee will gain a full 8% in the next year.

One thing's for sure. When money pours into India, it pours in quickly. For instance, their Bombay Stock Exchange's Sensitive Index (Sensex) was up 47% last year. Yet the credit crunch scare has caused it to pull back 16.4% so far this year.

Indian Government Is About to Take Away Restrictions - A Major Boon for the Rupee

There's another reason the rupee could rally in the months to come.

The Indian government put in "curbs" nine months ago that limited the amount of rupee borrowing. Policymakers created these restrictions so they could slow the investment inflows into the country. They didn't want all this foreign money to boost the rupee too quickly and hurt their exporters.

Well, now that the rupee has fallen so much and so quickly, I believe we're past hurting the Indian exporters. I predict the Indian government will do away with those restrictions shortly. This will allow a greater "inflow" of capital into India much more easily than it has since the government put the curbs in place nine months ago.


Indian Companies Are Screaming:
"Let Us Bring Our Money Back Home!"

In fact, as we speak, there's about US$20 million of overseas money that Indian companies need to bring back to India. But they can do that without their central bank's permission. Now when I say, US$20 million, I mean each company needs permission to bring back US$20 million on its own. Add that up and you should see a flood of money pour back into India and boost the rupee.

I believe the central bank will grant its permission soon. Honestly, it's in the central bankers' best interest. That's one of the easiest ways to stop the "bleeding" on the rupee. It would be an easy first step.

Also keep in mind that inflation is still on the rise in India. That's a good thing from a currency perspective. In fact, their inflation unexpectedly rose to the highest level in 3 years recently. Wholesale prices also gained 7.83% from a year earlier.

The central bank will have to deal with this high inflation at some point. That means raising interest rates once again, which will also boost the rupee. I say they'll have to deal with it soon because the central bank's target for inflation is 5.5% right now. They already blew past that inflation market by over 2%.


When to Buy to Beat the Tidal Wave of Cash

So you can see that there are many reasons why money is about to return to the rupee.

The key is to get in before the tidal wave of money hits. That tidal wave will hit as soon as those curbs are lifted. You'll want to buy just before that.

And finally, if you want one more reason to buy the rupee in the upcoming months, Prime Minister Singh will want to reign in inflation because they have to hold another election before May 2009...and I'm sure he wants the best chance at being elected.

If he's tough on inflation and cools prices in India, he may stand a good chance. Believe me, this is important when about half of India's 1.1 billion population lives on about US$2 a day.

Sean

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