Muscat: With the Indian rupee at an all-time low and the stock markets falling an industry expert said that like other countries, India could enter an economic slowdown phase.
“This is shown by the Indian central bank’s reduced growth projections during which the stock market could go into consolidation,” said Farah Mourad, Senior Market Analyst at XTB Mena.
“This is particularly true while inflation remains high and central banks continue tightening their monetary policy. As a result, the rupee could continue to depreciate against the dollar while the latter is supported by the Federal Reserve,” she added.
As the rupee comes under further pressure, the Indian authorities have also been raising interest rates that could help support it by reducing the interest rate differential against the dollar.
“Such an operation was executed successfully by the Russian central bank to shore up its currency after the invasion of Ukraine. Establishing settlements in rupee for India’s large oil imports could also reduce pressure on the currency. A more stable currency could help attract foreign investors to the stock market and shore up prices,” she further said.
Although Indian expats in Oman and other GCC countries can enjoy a higher exchange rate for the rupee, Farah Mourad cautioned that the lower exchange rate would mean that imported goods cost more in India. “This is particularly in the case with oil and its derivatives and crude prices have climbed sharply in dollar terms and this is exacerbated by the fall of the rupee,” she added.
When asked about the fair exchange rate of the rupee-dollar, she said that the market exchange rate of the rupee is determined through offer and demand and global economic conditions. At the moment, these conditions are in favour of the US dollar which is seeing its value appreciate. “However, the rupee could see the tide turn in its favour when the Federal Reserve ends its tightening cycle, leaving room for the economy to grow and demand Indian goods to expand,” she added further.
Elaborating on the US Fed’s aggressive rate hike and its implications for Oman and other Gulf Cooperation Council (GCC) countries, the Senior Market Analyst at XTB MENA, said, “The tightening of the US monetary policy is extending to Oman and other GCC countries as well, as growth and global trade are set to slow down.”
“At the same time, lower growth could result in weaker demand for energy which is the main export in the region. In this regard, oil and natural gas prices could continue declining, impacting fiscal revenues and companies’ results,” she added further.
The central banks around the world are raising their interest rates to fight inflation, and among them is the Federal Reserve. And just like the Fed, central bankers are adamant about reducing inflation at all costs even if the economy slows down. This economic slowdown is expected to impact all economies including India, which could see its exports to the US, Europe and China shrink. The United States is India’s largest export market and a significant decline in activity there could have a large impact on Indian industries.
When asked if this move put further pressure on the Indian stock markets, she said that the interest rate hike has effectively eroded investors’ confidence, who could seek refuge in safer assets and avoid international markets like Indian stock markets. In this regard, foreign investors have been massively exiting Indian equities and could continue to do so as risk aversion increases. “This would result in fewer inflows to support current price levels. At the same time, the economic slowdown could pressure companies’ margins which in turn could make local investors more cautious toward stocks,” she added.