Blog for Stock tips, Equity tips, Commodity tips, Forex tips: Sharetipsinfo.com

Kerala, with its diaspora all over the world, stands to gain from the continuing depreciation of the rupee against the dollar and West Asian currencies, which is expected to bolster remittances to the state and reverse a trend of slowing growth of such deposits, experts said.

A recent notification allowing non-resident Indians to send up to Rs 10 lakh to relatives in India without informing the government is another factor that may support this trend.

Kerala used to account for 19 percent of total remittances to India a few years ago. Though remittances to India grew to $87 billion last year from $83 billion in 2020, as per World Bank data, inflows to Kerala suffered after the outbreak of Covid-19 because of widespread job losses and the return of workers from the Gulf countries, which account for almost 90 percent of 3.4 million Keralites living abroad.

The World Bank report projected that remittances to India will grow 3 percent to $89.6 billion in 2022, with the slower pace reflecting the drop in overall migrant stock. But will the depreciating rupee change the trend?

Remittances to Kerala have started rising as the rupee drops to new lows. Although the increase is not much now, the inflows may pick up further. Additionally, growth of NRI deposits in Kerala’s banks has slowed, suggesting that people appear to be spending remittance money more instead of retaining them in banks. This trend may change as interest rates rise.

Marginal increase

There is a marginal increase in the volume of remittances, partly due to the holiday season in the Gulf countries and partly on account of weakness in the rupee, a senior executive of Lulu Financial Holdings said. The rupee closed at 79.60 to the dollar on July 12, a new low.

“Under the prevailing situation, the trend might continue for some more time. People are waiting for further depreciation of the rupee. This includes high net worth individuals whose transactions are of higher value and investors who might be waiting for the rupee to test the Rs 80 mark,” the executive said.

Non-resident Keralites in the US and Europe are also cashing in on the situation.

“They don’t usually remit money regularly, but occasionally send money to their families. They have also begun to remit money now. We have seen them pledging gold for money to send to India on earlier occasions,” said Bijimon, head of the money transfer division at Muthoot Finance.

The Kerala government said last year that about 1.5 million non-residents had returned to the state following the outbreak of the pandemic. Experts said many of them have since returned.

In their paper Kerala Return Emigrant Survey 2021: What Next for Return Migrants of Kerala?, S Irudaya Rajan, founder chairman of the International Institute of Migration and Development, and Balasubramanyam Pattath, a research fellow at the institute, said about 50 percent of distressed return emigrants to the state wanted to re-emigrate, while 32 percent decided to seek work in Kerala or retire, possibly due to the negative experience encountered during Covid-19.

Remittances are crucial to Kerala as they account for 36.3 percent of the state’s GDP, unlike other states, which may have more migrants overseas.

According to a survey in the paper, 75 percent of return emigrants sent remittances home, the most common reason being debt payments (30 percent), followed by household expenses (25 percent), periodic investments (21 percent), and maintenance (12 percent).

The survey found an overall increase in monthly remittances since Covid-19 started, indicating resilience among more than 70 percent of the sample. However, the number of distressed emigrants sending remittances waned at larger amounts pre- and post-Covid-19 lockdowns, indicating a cash crunch due to job losses, withholding of wages, and the use of savings towards repatriation.

Gulf situation better

However, the situation is improving in the Gulf countries. The Lulu Financial Holding executive said economic activities are picking up in the Gulf region.

“The stimulus of the UAE government has been a big support for businesses to make a comeback. Even the Expo 2020 and resulting tourism and business deals have played a vital role in the recovery and we can see great signs of steady growth and 2022 would be a remarkable year,” he said.

Remittance flows from the US and Europe have been affected more by the Russia-Ukraine conflict than the pandemic. In recent times, there has been a slight increase in euro remittance volumes. However, people may be waiting for the euro to weaken further before remitting money home, he said.

The executive reckoned the recent amendment to the Foreign Contribution Regulation Act (FCRA) that allows NRIs to send as much as Rs 10 lakh instead of Rs 1 lakh to relatives in India without informing the government will facilitate the free transfer of funds. If the amount exceeds the limit, individuals have three months to inform the government instead of 30 days earlier.

Earlier, a large chunk of remittances went to banks as NRI deposits. However, the growth of NRI deposits in Kerala slowed last year, probably because of economic distress.

Total NRI deposits in banks grew 3.7 percent year-on-year to Rs 2,38,408 crore in FY22, following a 10 percent increase to 2,29,636 crore in FY21.

“Moreover, the outflow from banks has increased. People are not keen to retain money in the banks. Maybe they are using it for business purposes,” said Ajayakumar, AGM, NRI, at State Bank of India.

He said the trend will likely reverse as banks have started revising interest rates upwards for both rupee and foreign currency non-resident accounts.

“The rupee depreciation and the hike in interest rates may bring more NRI deposits to banks in the second half of the year,” he said.

The rupee weakened to a fresh low against the US dollar on Tuesday as the greenback surged to a 20-year high globally and domestic equities suffered losses, dealers said.

The rupee was Tuesday morning trading at 79.61 against the US dollar versus its close of 79.44 on Monday.

The US dollar index, which measures the unit against six major currencies, was at 108.42 this morning, as against 107.67 on Monday. The index was at levels last seen around August 2002, Bloomberg data showed.

At 10:40 am IST, the BSE Sensex and the NSE Nifty were trading 0.3 per cent and 0.4 per cent lower, respectively.

The dollar has been on a strengthening spree of late as worries over slowing global economic growth amid an energy crisis in Europe and aggressive rate hikes by the Federal Reserve have sent investors rushing to the safety of the US currency.

In 2022, the US dollar index has gained 13 per cent. The rupee has depreciated 6.6 per cent versus the dollar over the same period.

The broad dollar strength comes at a time when record outflows of overseas investment and elevated crude oil prices have rendered the outlook on India’s current account deficit unfavourable.

The Reserve Bank of India (RBI) has announced a slew of measures to ease pressure on the rupee, but currency traders predict an unfavourable near-term outlook for the domestic currency amid global headwinds.

The RBI, on Monday, permitted the international trade settlement in rupees, a move that could be aimed at facilitating transactions with Russia, analysts said. Last week, the central bank announced relaxations in overseas investment in government securities as well as sums raised abroad through External Commercial Borrowings.

“In the recent past, RBI has taken steps that could ease the pressure on the rupee viz-a-viz country’s deficit. However, so far the positive impact of the same hasn’t yet been translated into the USDINR pair given by overpowering glooms and the risk-averse environment globally,” said Amit Pabari, managing director at CR Forex Advisors, in a note.

“The given fundamentals shall likely sustain its pressure on the rupee keeping the upside open well in place. As the pair breaks its crucial 79.50 levels, it’s a little far from the next big figure 80.00 levels that could be seen in the short run,” he said.

Japan plans to provide support to India to drive the transition to clean energy, expanding a programme it launched last year for Southeast Asian nations, Industry Minister Koichi Hagiuda said on Wednesday.

Japan's 'Asia Energy Transition Initiative' initially targeted supporting countries in the Association of South East Asian Nations (ASEAN) pushing towards net-zero carbon emissions, including $10 billion in finance for renewable energy, energy efficiency and liquefied natural gas (LNG) projects.

"Specific support includes support for ASEAN countries in the Asian roadmap towards carbon neutrality, which will be expanded to include India," Hagiuda said at the Sydney Energy Forum, co-hosted by the Australian government and the International Energy Agency.

Hagiuda said the region needs to work on diversifying where it gets its energy from, in light of the ongoing energy crunch due to loss of Russian energy supplies.

"Against that backdrop, considering the current energy crisis, stable energy supply and market stability are critical as the basis for promoting a transition towards carbon neutrality," Hagiuda said.

For that we must engage in improving our energy independence through things such as a further push for diversification of energy sources of supply."

Ahead of his trip to Sydney for talks with Quad partners Australia, India and the United States, Hagiuda said on Tuesday he would press the United States and Australia to boost LNG output and stable supply to Japan.

He made no comment in his speech about the outcome of those talks which took place earlier on Wednesday.

Click Here:- Get Live Indian Stock Market tips From Sharetipsinfo

On July 11, the Reserve Bank of India created a stir in the financial markets. Its press release titled ‘International Trade Settlement in Indian Rupees (INR)’ permitted Indian banks and the international trade community to invoice and settle transactions in Indian rupee. The policy is quite significant, and is a major step towards internationalisation of the INR.

What is internationalisation of a currency? It means that the currency is accepted across the world as a medium of exchange. The US Dollar (USD) is a currency which has remained international for more than a century now. In early 20th century, the USD replaced the Great Britain Pound (GBP) as the dominant international currency. Post- World War II, this position was cemented further as all currencies were pegged against the USD. Even after the breakdown of Bretton Woods in 1971, the USD has maintained its pole position.

The dominance of the USD caused many an irritation in global politics. In most transactions across the world, the USD is usually the de facto currency of payment which ensures that Washington always plays a crucial role in world affairs. French Minister of Finance Valéry Giscard d'Estaing termed this as “exorbitant privilege”. European leaders gave up their own currency and joined hands to establish the Euro, mainly to counter USD’s hegemony.

Typically, the rise of an economy at the global stage leads to rise in the share of its currency in global transactions. But this has not been the case with the US. Over the last five decades, the share of the US economy globally declined from 25 percent to 15 percent. The USD’s share in foreign exchange reserves and international debt also declined, but at 60 percent it still remains dominant.

The US’ economic decline has coincided with China’s rise. China’s share in global output has risen from 2 percent in the 1980s to 20 percent, which is higher than that of the US. Yet the share of the Chinese Renminbi in the global forex reserves remains a paltry 2 percent while share of Euro has remained stagnant at 18-20 percent since its inception.

Gita Gopinath, First Deputy Managing Director, IMF, along with other researchers has termed this dollar hegemony as ‘Dominant Currency Paradigm’, which poses macroeconomic risks. Mike Carney, former Governor of the Bank of England, argued that in a multipolar world, we need to have multi-polar currencies. He even advocated digital currencies to counter the supremacy of the USD.

Where does the RBI’s July 11 press release fit in this world order of international currencies? The global share of India’s economy has increased from 2 percent in 1980 to around 7 percent currently. It has also become a popular destination for global portfolio flows, and foreign direct investment. The potential growth of the Indian economy pegged at 6-7 percent, much higher than most other countries. The government and the RBI have also opened both current and capital accounts, allowing foreigners to own Indian assets and Indians to buy foreign assets. So there is clearly potential for the growing internationalisation of the Indian economy.

The July 11 note is another major step in this direction of internationalising the economy. The RBI press release notes that “in order to promote growth of global trade with emphasis on exports from India and to support the increasing interest of global trading community in INR, it has been decided to put in place an additional arrangement for invoicing, payment, and settlement of exports / imports in INR.” This implies that hereon, exporters and importers have a choice to invoice their transactions in the INR, which was mainly in the USD till now. The RBI has also permitted banks to tender advance loans to exporters against invoices in the INR.

The policy will also help position the INR as an international currency. Shyamala Gopinath, former Deputy Governor of RBI, in a 2009 speech pointed to three factors for currency internationalisation. First, payments for international transactions can be made in that currency. Second, both residents and non-residents can hold financial assets/liabilities denominated in the issuing currency. Third, freedom for non-residents to hold currency balances, even beyond the territory of the issuing country. The current policy is a step towards the first factor. The RBI and the government have been working on the second and third factors as part of capital account management.

The above policy does not imply that we will see an immediate transition from the USD-based invoicing to an INR-based invoicing. It will at best be slow and gradual. Indian policymakers can start in a small way by encouraging the INR payments with neighbouring South Asian countries and other trade partners. Currently, most South Asian countries are facing a crisis, and requesting India for financial and humanitarian support. Giving aid in the INR and encouraging future invoicing in it will also be a winning preposition for these crisis economies, as they will not require the USD for payments. Having said that, few South Asian economies such as Sri Lanka and Nepal do use INR for payments. The new arrangement should also help India pay Russia for the oil which has been debarred from USD payments.

While the USD has remained a dominant currency, there is early research that economies are moving away from it to other currencies, mainly Chinese Renminbi. The INR could be part of forex reserves too. Isteatndia also has an edge over China in terms of a more open capital account and liberalised financial markets, which should help strengthen the status of the INR.

The international monetary order usually follows the international political order, with a lag. This time around, the duration of the lag has been high, as despite the decline of the US economy, the USD remains dominant. While the USD will still remain dominant in near future, it is fair to expect that its share will gradually decline. The question is which currency will dominate the world monetary order?

The government on Tuesday will release the key data on June retail inflation which will be factored by the Reserve Bank in its next bi-monthly monetary policy to be announced in early August.

The retail inflation has remained above 6 per cent since January this year forcing the central bank to go for two back-to-back hikes in policy rates (repo).

The Consumer Price Index (CPI) based retail inflation, which was at 7.04 per cent in May, is unlikely to reach the RBI's comfort zone of below 6 per cent soon amid high commodity prices due the ongoing Russia-Ukraine war.

The data on CPI is scheduled to be released at 5.30 in the evening by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI).

Last month, the Reserve Bank in its bi-monthly monetary policy review raised the benchmark repo rate -- at which it lends short-term money to banks -- by a sharp 0.50 per cent to 4.90 per cent to rein in spiralling prices. It followed an off-cycle meeting on May 4, when the central bank hiked the repo rate by 0.40 per cent.

RBI Governor Shaktikanta Das, while speaking at Kautilya Economic Conclave on Saturday, had exuded confidence that the price situation will gradually improve in the second half of the current fiscal.

He also said the central bank would continue to take monetary measures to anchor inflation with a view to achieving strong and sustainable growth.

The Governor said that price stability is key to maintaining macroeconomic and financial stability and the central bank will undertake measures for preserving and fostering macroeconomic stability.

The Reserve Bank, which factors in the CPI in its monetary policy, had in June raised the inflation forecast for the current financial year to 6.7 per cent from its previous estimate of 5.7 per cent.

Click Here:- Get Live Indian Stock Market Tips From Sharetipsinfo

To protect businesses from harassment, the Central Board of Indirect Taxes and Customs (CBIC) will soon come out with an elaborate standard operating procedure (SOP) for serving summons and notices under the Goods and Services Tax (GST) regime, according to a report by The Economic Times.

The new SOP will permit the board to closely monitor the GST probe, the line of investigation adopted, and its progress. The officials will be more accountable and the entire process will become more transparent. The move comes after a significant increase in the number of complaints against the use of force and coercion by tax authorities for making recovery during the probe has been reported.

"We don't have any SOP under the GST for summons and notices, and these are two troublesome things," said one official, who did not wish to be identified. "Once there is an SOP in place, we can question any breach."

In the past few months, there has been a surge in the number of tax notices, which were served by the GST officials, summoning finance chiefs, CXOs, and even chief executives to be physically present. Several businesses also end up getting repeated summons.

The draft for SOP is almost final, the official said, adding that there have been elaborate discussions with field formations and stakeholders, including businesses.

The proposed SOP will also aim to ensure that there is no overlapping of notices between the central and state jurisdiction. Many businesses had complained that they received multiple notices for the same issue, thereby making compliance difficult for them.

In May, the board directed its field formulations that tax authorities would face action if a taxpayer is forced to make a voluntary payment of tax during a search and that recovery of dues should follow the due legal process after issuance of adjudication order, and not during searches.

Q1. The RBI is taking a series of steps to attract foreign flows and protect the rupee amid depleting forex reserves. It is acting across three channels – the banking deposit, the FPI debt, and the ECB. Will these measures be enough?

Ans:

>RBI signalling that world economic turmoil to last longer than expected

>RBI and govt ensuring that private debt repayments don’t go against India

>Creating framework for compensatory inflows

Q2. Of the 621 billion dollars of external debt, over 40 per cent is due for repayment in the next nine months. This will be equivalent to about 44 per cent of the country’s forex reserves. First, is this bunching up of repayments par for the course? And if not, how will this play out going forward?

Ans:

>The present situation is unusual

>Huge external commercial borrowings by India Inc after 2008 crisis

>Economy presently facing forex and inflation pressure

>RBI’s inflation targeting will address some of these pressures

>Pressure will emerge on growth front, instead of inflation or forex

Q3. Current account deficit is seen doubling to 3 per cent of GDP this year and the rupee hitting 82 a dollar by the third quarter before recovering. Given these, how has the RBI fared in managing the rupee’s fall and are its CAD measures adequate?

Ans:

>Rupee hasn’t depreciated against basket of currencies due to strong exports

>Global monetary tightening and likely recession in importing countries could change scenario

>People worried about rupee’s fall could be in for a shock in the near future

Q4. Do you get the sense that authorities like the RBI are behind the curve in tackling economic headwinds and are playing catch up?

Ans:

>RBI waited too long to express concerns on inflation

>Sudden off-cycle rate hike made it look like RBI was taken by surprise

>Worried about RBI’s image

Q5. I will have to press you on the current account deficit...

Ans:

>3% CAD not that alarming by Indian standards

>Domestic inflation is of greater concern

>Controlling inflation will also correct CAD problem

India's retail inflation likely held steady in June, but well above the Reserve Bank of India's tolerance limit for a sixth month as lower fuel and cooking oil prices offset higher services and food costs, a Reuters poll found.

Despite a substantial recent increase in food prices, rising at the fastest pace in nearly two years, overall inflation was partly contained after the government cut taxes on petrol and diesel and imposed restrictions on food exports.

But most economists warned the near-term outlook was highly uncertain as a heatwave last month pushed up vegetable prices. The government has also cut estimates of wheat production because of dry spells in northern India.

The July 4-8 Reuters poll of 42 economists showed inflation as measured by the consumer price index (CPI) was steady at an annual 7.03 per cent in June, versus 7.04 per cent in May.

Forecasts for the data, due at 1200 GMT on Thursday, July 7, were in a 6.45 per cent-7.70 per cent range.

If realised, inflation would be above 7 per cent for the third consecutive month and above the RBI's 6 per cent upper tolerance target for a sixth month.

"While several goods and services categories are likely to report higher inflation in June, fiscal measures undertaken by the government…will help to cap the upside in domestic prices across food and other segments," noted Rahul Bajoria, chief India economist at Barclays.

"Still, services costs are trending higher, and a passthrough from higher commodity prices is evident across several sectors."

The Reserve Bank of India (RBI) has raised interest rates by 90 basis points so far this year to 4.9 per cent and is set to add more in coming months. RBI Governor Shaktikanta Das said recently inflation was unlikely to fall within the top end of its mandated target band until December.

Wholesale price inflation was seen only moderating slightly from May's three-decade high of 15.88 per cent to 15.50 per cent, the poll showed.

Although consumer price inflation seems to be stabilising, widening trade and current account deficits due to high global crude oil prices pushed the rupee to a recent record low of $79.375, raising concerns over higher imported inflation.

A separate question in a recent Reuters poll asking what the rupee's lowest point against the dollar would likely be over the course of the next three months gave a median of 80, with a range of 79.50-85.00/$.[INR/POLL]