'Shake out of your comfort zone': Uday Kotak to India Inc as rupee breaches Rs 90-mark

As the rupee hit Rs 90 against the US dollar for the first time, Kotak Mahindra Bank MD and CEO Uday Kotak on Wednesday advised Indian businesses to "shake out of their comfort zone". In a tweet, Kotak attributed the rupee's decline to sustained foreign institutional investor (FII) outflows and private equity (PE) selling, calling on businesses to compete more aggressively as the market faces unprecedented pressure.

"₹@90. The proximate reason: foreign selling of Indian stocks both FPI & PE under FDI. Indian investors buying. Time will tell who is smarter. For now, foreigners seem smarter. 1 year Nifty $ return is 0. But this a long game. Time for Indian business to shake out of comfort zone," Kotak wrote on X.

The rupee, which opened at Rs 89.96 and slipped to an intra-day low of Rs 90.15, has been in steady decline, showing the weakest levels against the dollar in recent weeks. According to Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors, the continued depreciation of the rupee is largely due to FIIs offloading Indian equities in the wake of delays in the India-US trade deal and lack of RBI intervention.

Anshul Garg, a Chartered Accountant, also weighed in on the market situation, commenting on the "big-time equity dumping" that he believes is being driven by foreign investors. He expressed concern that "domestic investors are buying it like crazy," and warned that if recent IPOs do not live up to the hype and valuation, "domestic investors will end with no returns." 

This sentiment was also shared by Pawan Tak, another CA, who remarked on the "classic showdown" between foreign sellers and local buyers, adding, "1-year Nifty in $ terms: 0%, yes that is true. But markets reward patience, not panic. Time for India Inc to stop coasting and start competing."

The background to the rupee's weakening can be traced to several economic and geopolitical factors. While the rupee's depreciation was exacerbated by foreign selling, it also comes amidst uncertainty in India-US trade talks, particularly with the stalled India-US trade deal. 

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, pointed out that the continued depreciation in the rupee is directly tied to the uncertainty surrounding trade negotiations, forcing FIIs to sell off despite the positive fundamentals in India's corporate earnings.

The lack of intervention by the RBI has raised concerns over the rupee's trajectory. Jateen Trivedi, VP Research Analyst at LKP Securities, noted that the absence of a confirmed India-US trade deal and the muted RBI intervention has led to a sharp decline in the rupee's value, "accelerating selling in the rupee over the past few weeks." 

Trivedi also warned that the rupee's fall below the Rs 90-mark could continue unless the RBI intervenes with a clear strategy, as market uncertainty remains high.

Despite this, there are signs that the rupee's volatility may be contained, as the US dollar index showed a slight dip, and Brent crude oil prices also fell by 0.03% to $62.43 per barrel. YES Securities noted that while rupee volatility remains elevated, the downside risk seems to be contained.

The firm also emphasized that rupee depreciation this calendar year has already exceeded the long-term average, but FIIs inflows may pick up if the rupee continues to weaken beyond its historical range.