Exports growth cushions rupee's fall post note recall.

MUMBAI: Though foreign portfolio investors sold domestic securities with rising US Treasury yields post Donald Trump's election as US President, improving exports has seen the Indian rupee weather the demonetisation roil to outperform other emerging market currencies in a yearend fillip. 

Between November 8 and now, the rupee has gained significantly against top 20 emerging market currencies. Only three currencies -Russian Ruble, Peruvian Sol and Hong Kong dollar-have done better than the rupee. Through the calendar year, the rupee was one of the worst performing currencies among the 23 EM currencies. 

India's exports increased 2.3% to US$ 20.01 billion in November. 

“Rupee has weakened to the dollar at a rate much less than what other EM currencies lost value to the greenback,“ said Anindya Banerjee, currency analyst, Kotak Securities. “This has reflected in the rupee's strength against other currencies. Rupee's fall to the dollar was not sharper during the period (2%).“ 

Between early November and mid-December RBI's forex reserves shrank by about $7 billion suggesting it may have sold enough dollars to stem the local unit's loss to the greenback. 

“Importers' payments have been mostly delayed in the wake of demonetisation (that triggered temporary slowdown in the economy)," said K N Dey ,a senior forex consultant. “Also, India's macro fundamentals are seen relatively better than its EM peers, which in turn, has played a role to the rupee's gain." 

India's gold imports have shown some signs of contraction, helping shore up the rupee's exchange value because most gold in the country is imported.Between April-November 2016 India imported gold worth $15.72 billion, down 30.5% from $22.62 billion in the same period a year ago. “A drop in gold imports has contributed...," said Saugata Bhattacharya, chief economist at Axis BankBSE 1.14 %. 

Stepped-up growth across sectors would strengthen the rupee.The yellow metal has been losing price lustre of late, and hence the considerable drop in gold imports. Going forward, we need financial development and liquidity so that, say, securities like stocks and bonds can verily replace gold as store of value.