Rupee Readings: Correlation with Sensex, Lessons from Japan
- Business Standard: Rupee, self-interest & RBI policy
So why the pressure, and advocacy, of allowing the currency to excessively appreciate in India? An important lesson that economics teaches is that the key to any mysterious behaviour is self-interest. The clarion call for the desirability of an appreciating rupee is led by the foreign investors and foreign �smart� investment banks. When the inflation rate was high, they were advocating tighter monetary policy for the RBI (yes, the same guys who in their own countries brought on the sub-prime crisis!). This advocacy was consistent (convenient?) with higher riskless profits, �the mother of all carry trades�: borrow in the US at 5 per cent, and obtain exchange rate appreciation of 5-10 per cent. And don�t even bother about stock market appreciation!
- Orpheus Capitals: The rupee correlation
We don’t see the rupee appreciating beyond 38, it’s a turning point for us. And we are not far from a dollar surprise as it turns around for a multi-month of strengthening. And about the Sensex, the immediate price targets lie at the Fibonacci confluence of 18,000 points despite what the rupee does and without health care, FMCG, auto and IT, which still reel under or near May 2006 highs.
- Knowledge @ Wharton: Responding to the Rising Rupee: Why Indian Firms Must Rethink Their Business Models
Consider what leading Japanese firms like Toyota did as the yen strengthened against the dollar. For product lines where they made the highest margins, such as the Lexus, they continued production in Japan. However, for lower-priced models — where their profit margins were lower and would have been eroded further by the rising yen — they moved production to the U.S. They protected their margins on non-premium products by moving production — and therefore shifting costs — into dollar-denominated areas.
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