Rupee's Destiny Is To Depreciate: Kotak's Nilesh Shah

The rupee is structurally on a weakening path and could eventually touch the psychologically significant 100-per-dollar mark, but this should not be a cause for concern if the depreciation remains gradual and orderly, according to Kotak Mahindra Asset Management Company Managing Director Nilesh Shah.

He noted that "destiny of rupee is to depreciate," attributing the trend to macroeconomic fundamentals such as higher inflation and relatively lower productivity compared to India's trading partners. 

"Despite India being the fastest growing major economy, our inflation is higher than our trade partners and our productivity is lower... so for my economy to remain competitive, rupee has to adjust," he said. 
Shah noted that while the pace of depreciation may moderate over time, from earlier levels of around 7 per cent annually to about 4 per cent now and potentially lower ahead, the direction remains unchanged.

"Maybe going forward it will become 2 per cent, but it will depreciate," he added. 

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On whether the rupee could breach the three-digit mark against the US dollar, Shah said it is "quite likely," but emphasised that such a move would not be alarming if it reflects underlying economic adjustments rather than disorderly market conditions. 

"One day will we see rupee going into three digits? Quite likely. But if it is orderly depreciation, it ensures that our economy remains competitive," he said. 

He cautioned against artificially supporting the currency, citing examples of countries where such policies have backfired.

"If we raise the rupee in a wrong way... the capital will leave the country... the economy will be completely destroyed," Shah warned. For businesses, especially small and medium enterprises (SMEs), Shah said a gradual depreciation does not warrant major concern.

"If it is keeping your competitiveness orderly, then it is perfectly fine. They don't have to do anything," he said.