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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  APRIL 20, 2004

    Investing: Listen to the experts! (Part III)
    MYSTOCKS | FREE NEWSLETTER

    Pfn:The Indian Rupee has appreciated quite significantly vis-a-vis the US Dollar in recent months. On the other hand, the Indian currency has depreciated against the Euro and the Yen. What are your expectations, over the next one year, pertaining to the value of the Indian Rupee?

    Mr. Mulji: In the short term there is every possibility of the Rupee appreciating. But the most important thing in the short term is that one should have enough confidence that the Rupee will be freely determined without too much interference.It's fine with the government intervening a little bit here and there to smooth out the movements. But once it can be said that that exchange control as such will not be allowed to re-enter then we are alright. It does not matter if the Rupee is Rs 45 or 43 or 42 (to the US Dollar). It is a silly game which is being played. And those who are sensible about it will ignore that aspect, and leave the speculator to make money by playing the game.

    Mr. Mecklai: I see continued appreciation of the rupee against the dollar, reaching, say, 44.50 by year-end 2004. However, the market will be more volatile than it has been, particularly after the elections.

    Against other currencies, it is a lot harder to call. Again, significant volatility - probably a range of 50 to 56 for the Euro, and 0.37 to 0.41 for the yen.

    Mr. Dayal: Probably in a minority of one, I believe the Rupee will depreciate. It has depreciated against the Euro, Pound and Yen but not against the US Dollar. But the US Dollar has lost value against every single currency in the world.

    The US Dollar in my view is over sold. So to that extent the Rupee will lose ground against the US Dollar going forward and gain ground against Euro, Pound and Yen. But against a basket of currencies I think the Rupee will continue depreciating only because of the very simple notion that India needs capital to grow and that capital is going to come from outside. And countries which need capital from the world will have weaker currencies.

    But you will not find a shock. You will not find the devaluation of the 1960s, 1991 and 1992. You are not going to find a one time 30%-40% fall in the value of the Rupee. It will gain 3%-4% a year, and lose 3%-4% a year. But in the long term, it will lose 3%-4% a year.

    Pfn:Over the next 10 ten years, which currencies do you think will be the 'best performers'. Alternatively put, in which currency or basket of currencies should investors hold the bulk of their assets if they are to capitalise on potential appreciation in the value of the currency.

    Mr. Mulji: Obviously from a 10 year perspective, it is not the exchange rate that matters. For example the Japanese Yen used to be at 1Yen=1US$, then it went to 360Y=1US$, then it went to 700Y=1US$ and then it came back. Now it is about Y100 per US$. So when you take the long term the exchange rate does not matter. What actually matters is how countries grow. And as I have often said, it is countries which need growth that will grow the fastest, because they have the manpower.

    Over the next many years, I would expect the Chinese Yuan, the Indian Rupee and the Yen to harden. I think the US Dollar is a universal currency. It is a measure of all currencies and it has gained a lot,but now it is losing out. But I think the US Dollar will go down. But luckily the Americans do not care what happens!

    Mr. Mecklai: Assuming you are simply going to lock the money up for 10 years, I would believe that the best currencies will be the rupee, the renminbi and other Asian currencies. There will likely also be other emerging market currencies that will appreciate secularly against the majors.

    Mr. Dayal: I still maintain the US Dollar will be one of the strong currencies. I would not be in Euro, Yen or Pound largely because some of these economies have to have significant changes in the way they run. There need to be structural shifts in how they handle labour, in pension, in health reforms.

    I would be optimistic about the US largely because they are quick to turnaround and change their economies to suit the environment. I would be optimistic about the US Dollar. Among the emerging economies I would look at either China, India and Russia. Between these I would opt for Russia because of their commodity base. China is some sort of a mystery so I do not know where the currency will be. It depends a lot on US consumption and if US consumption patterns shift from buying shoes to software, I would bet more on the Rupee than I would on the Chinese currency.

    I would look at the US Dollar as a strong currency. I do not see why that should change. It has not changed in previous decades. And the world needs to have another currency created as a counter balance to the US Dollar. The Euro is one, but there are structural issues. Maybe the Asian countries will come out with a currency, I do not know.

    Pfn: A key concern globally, and in India here, has been of a possibility of a sustained rise in interest rates in view of the central banks' efforts to slow down the pace of recovery. Please share your views on this and also your expectations of the interest rate levels in various parts of the world.

    Mr. Mulji: I think that there could be a rise in deposit rates but a fall in the lending rates. In the sense the spread is likely to narrow.

    This question about the rise or fall in interest rates is less important than how quickly they are allowed to rise and how quickly they are allowed to fall. One of the great defects of governments is that they are always afraid of volatility and they try to slow it down very considerably. But this is disadvantageous as by slowing it down it takes longer to get to the right kind of rates.

    I would imagine that interest rates will remain low in India, partly kept low by the government.

    Mr. Mecklai: I don't believe there will be a sustained rise in interest rates globally because this could tip the US into a very severe recession. I also believe that the inflationary threat that is implicit in the huge rise in commodity prices will be modulated by the continuing increase in productivity in India and China, as these economies mature. However, I do feel that the yield curve in India is a bit too flat, and we should see a rise in longer rates.

    Mr. Dayal: I think interest rates around the world have only one way to go, and that is up. Largely because commodity prices have increased and inflation is a real threat.

  • Investing: Listen to the experts! Part I

  • Investing: Listen to the experts! Part II

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