Rupee likely to depreciate further, USDINR may consolidate in 77-79 range in next quarter | INTERVIEW The Indian Rupee has been on a decline due to continuous foreign fund outflows and a risk-averse environment. At the end of February 2022, when the Russia-Ukraine war started, the rupee had stood at 73-74 to a dollar. Since then, its continuous fall has forced it to hit all-time low levels multiple times and has dragged the domestic unit above 78 mark. Dilip Parmar, Research Analyst, HDFC Securities said in an interview with Harshita Tyagi of FinancialExpress.com that there could be more pain for Rupee in the near term. “If the dollar continues to strengthen against regional currencies, the Indian rupee will follow it and we might see a level of 79,” Parmar said. Here are the excerpts from the interview. Q. Rupee is depreciating and is hitting fresh all-time lows almost everyday. What are the factors dragging the currency down? Q. Is further depreciation on cards? If so, can we see Rupee heading towards 79-80? There could be more pain in the near term but we do not expect sharp depreciation like other Asian peers. So far rupee has been the median performer among Asian currencies and is expected to remain an average performer following RBI’s intervention. If the dollar continues to strengthen against regional currencies, the Indian rupee will follow it and we might see a level of 79. Q. What is your 3-month target for Rupee? We expect the Indian rupee to swing in the range of 77 to 79 in the next quarter. Q. What, if anything, is RBI doing to lessen the damage for Rupee? As we all know, RBI is continuously intervening in the forward markets and that’s the reason forward premium is near a multi-year low level and the rupee is the median performer among Asian currencies. Though we have enough forex reserves, the way capital outflows are happening, the central bank needs to come up with measures to stop outflows and encourage inflows. Q. What does the rupee depreciation mean beyond export and import bills? The rupee depreciation impacts the cost of goods and services as we are dependent on imports for raw materials like crude oil, urea, pulses, edible oil etc. and higher import cost lead to higher product prices and a rise in inflation, slower demand and ultimately slower growth and higher interest rate. So, countries like ours which are more import-dependent need a stable currency regime. Q. What is the ideal investor strategy for forex traders amid this consolidation? In the last six months, the rupee has depreciated more than 5% against the US dollar and most of the negativity has been priced in by the market. We believe traders should cover the long dollar around 79 and wait for a correction towards 77 for a fresh position. USDINR is likely to consolidate in the range of 77 to 79 in the coming months. (The recommendation in this story is by the respective research analyst. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.