Rupee to test 47-level vs USD, GDP growth 6% by year-end'

Continuing flight of foreign capital from Indian equity markets and the persisting global financial crisis, hit by surging crude oil prices, are likely to send the domestic currency crashing to 47-level against the US dollar in the coming months, the experts have warned.

Since the beginning of 2008, the rupee has depreciated by over 8 per cent against the US dollar in a downward rally, which started after a sharp appreciation of over 11 per cent in the Indian currency spanning over a year-long period.

During its last appreciation leg, the rupee rose from about 45-level to a high of close to 39 per dollar mark, while it is currently inching towards 43-level amid continuing pull- out of foreign capital from India and surge in oil price.

Global brokerage and equity research major CLSA's analyst and a renowned portfolio manager Christopher Wood has said in the latest June edition of his famed "Greed and Fear" report that further rise in oil price would continue to be particularly bad news for India.

"This is both despite and because of the Reserve Bank of India's increasingly pre-emptive monetary tightening stance. The RBI raised on Tuesday the repo rate and the cash reserve ratio (CRR) by 50 bps each to 8.5 per cent and 8.75 per cent, respectively.

"Certainly, a re-test of the 12,000 level on the Sensex cannot be ruled out in these circumstances. And that will be accompanied by a further weakening in the rupee," Wood wrote.

Separately, research and analytics firm Evalueserve's Chairman Alok Aggarwal has written in a whitepaper that the rupee is expected to fall to 47 against the US dollar and GDP growth could slow down to six per cent by the fourth quarter of this fiscal.

"Should the present global financial crisis not subside, crude oil continue to trade upwards, FII outflow from India continues unabated, and the Indian government do more harm than good to the country's fiscal health in an election year, we are revising down our earlier forecasts.

"We now believe that the Sensex could drop to 12,000 in the near term, the Rupee could depreciate by another five to six per cent against the US dollar, and the GDP growth could slow to approximately six per cent by the fourth quarter of this fiscal year," Aggarwal wrote.

He also pointed out that deterioration of external and internal factors have thrown obstacles in the country's growth story.

"We also believe that the Indian government's hands are tied in an election year and it is likely to be a net negative contributor," he said.

Noting that the Indian economy is in a tight spot in the short term, the whitepaper said a number of external and internal factors are likely to create pressure on economic growth, corporate earnings and the stock market.

Further, it added that as the country's financial markets are relatively immature, small capital inflows and outflows tend to have an exaggerated impact.