BJP win in Karnataka will be positive for rupee; here is why

The Indian rupee which was trading over 16-month low over the past few days have shown recovery in their valuation against US benchmark dollar index on Tuesday. This was led by the trends in the Karnataka Election results from early morning which pushed BJP into the forefront with the party leading in 113 seats, so far. While JDS is leading in over 40 seats, Congress is leading in 60 seats. The Indian rupee has so far gained by 0.135 points or 0.20% trading at 67.555 against US dollar. Politics is a major factor in a pre-election year. Every state and local body election in India will receive more than usual attention as speculators try to pre-empt the 2019 national elections. 

Meanwhile, analysts have predicted that Prime Minister Narendra Modi led BJP forming a government in the state comes as a positive sign for the beleaguered Indian rupee against the US dollar. It needs to be noted that since last week, rupee has been in a free fall so much so that it even neared 68-mark which was last seen in January 2017 month. In previous trading session, Rupee depreciated up to 67.985-mark against dollar which comes as a negative sign for a list of factors. 

India depends on imports for crude oil in heavy amounts. Now crude oil has reached over four-year high by clocking nearly $77 per barrel mark. So the situation both rupee and crude oil prices are at peak level, which means the companies, investors as well as consumers will adversely be affected by the depreciation.

When a depreciating rupee makes import of crude oil more expensive, this directly leads to an increase in the operating expense of the companies, which results in weak profit margins. Following this, the real burden is borne by the consumers, as most of the impact on the company from the rise in import prices of crude oil is passed on to the consumers.

Therefore many experts have stated that, it’s NDA government’s win that can ease down the depreciation in Indian rupee,. 

According to Kotak Securities earlier, in case BJP forms the government, it will be a positive development for the Rupee, which is already one of the worst performing currency in the EM basket in 2018. It will reduce some of the political risk premium. In that case, USDINR can trade all way down towards 66.60 levels on spot.

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However, if  Congress retains the state, then it can add more fear premium to INR and can cause it to depreciate towards 68.30 levels on spot. 

Karnataka election results are out and BJP has bagged the lead, whereas Congress stood at second spot. 

On Tuesday, Anindya Banerjee analysts at Kotak said, “ Early trends indicate BJP could emerge as the single largest party. Such an outcome will be positive for Rupee, and that could be a reason why the local unit has appreciated by 23 paise from lows. We would not be surprised if USDINR comes down towards 67.35/40 levels on spot, which is the next trendline support” 

Banerjee added, “ If prices fail to hold that level, then corrective decline can extend towards 67.00/05 levels on spot. We exited our longs in the morning spike and would wait for a lower levels to re-enter.”