Expect rupee to remain in 52-56 range vs Dollar: Killol Pandya, LIC Nomura Mutual Fund

In an interview with ET Now, Killol Pandya, Senior Fund Manager-Debt, LIC Nomura Mutual Fund, shares his outlook on treasury. Excerpts:

ET Now: Let us talk about how the overall liquidity situation is panning out and what you make of what is likely to be doled out from the Reserve Bank of India on the 3rd of May?

Killol Pandya: The liquidity scene has improved significantly post the usual tightness which we have seen in March, but in addition to the seasonal nature of market liquidity, there seems to be a growing sentiment that incrementally liquidity should continue to be more relaxed than it has been in the past few quarters.

This is assisted by some of the factors which you just mentioned as well as the fact that there is increasing pressure from the banking industry to bring about a relaxation in the market liquidity. Overall it seems that the system as a whole is cash starved and there needs to be an injection of funds into not just the markets, but the system as a whole if we want to see lending rates come off, which in turn is obviously the kicker to kick start the investments cycle in India.

So, yes, the perception is that incrementally we shall see liquidity become far more comfortable than it has been in the past few quarters and that is fuelling some of the bullishness which we have seen in the gilt segment.

ET Now: Overall for the last week it was very volatile for the currency and most of the experts believe that it remains buffeted by the fears of political instability. What is your opinion as to where the rupee is headed against the dollar?

Killol Pandya: You are right. The currency has been quite volatile in the past few weeks and I do not rule out volatility in the future as well. However, if you take the broad directional call, the rupee actually is not headed anywhere. It is broadly maintaining a 52 to 56 range.

This I believe is here to stay for some time now irrespective of the fears which keep sweeping the markets off and on. I believe the rupee should be maintaining a band of 52 to 56 against the dollar. From the debt market perspective, this is not so bad in the sense that as long as the rupee maintains a band which is broadly known, the bond markets will adjust to it as we go along. So to reiterate, I do not rule out volatility in the future as well, but broadly speaking, I expect the rupee to maintain a 52 to 56 band against the USD.

ET Now: Two important macro data points due this week that are the IIP as well as the CPI numbers. What are your expectations?

Killol Pandya: IIP numbers are notoriously bunched. So, I would not be placing too much emphasis on a single reading of the IIP numbers as long as it maintains a broad 1% to 2% positive range. The bond markets are comfortable regarding CPI, it has been a thorn in the flesh of bond traders, especially, because WPI is showing one trend and CPI has been very stubborn for quite some time.

So yes, we will be watching CPI because it will go into the mix of the factors which RBI sees to formulate its monetary policy, but having said that I do believe that WPI is more important rather than the CPI. I will be more interested in seeing what trajectory the wholesale price index is giving me rather than the CPI.