Trump's Next Target is the Rupee

Asad Dossani

When you meet an Indian in the US, you typically assume the following: They are either a doctor, a small business owner, or a software engineer. Mind you, I don't fit any of these descriptions. But I would probably still make these assumptions for any Indian I meet here.

Most of the doctors and small business owners have been in the US for a long time. The more recent arrivals are the software engineers. And they all arrive on H-1B visas. Right now, a US employer needs to pay a minimum salary of $60,000 per year to an H-1B visa holder.

The Trump administration has made reforming the H-1B visa program a priority. A current proposal would more than double the minimum salary to $130,000 per year.

This is bad news for Indian IT firms. These firms stock prices have already taken a beating. But this isn't the only source of trouble.

The rupee is likely to fall significantly if these proposals go ahead. You see, Indians in the US regularly sell dollars to buy rupees. They send those rupees back to relatives in India. In 2015, Indians in the US remitted around $11 billion back home.

What's worse is that the remittances are skewed towards the software engineers. The doctors and small business owners have been in the US for much longer. They have fewer immediate relatives back in India. But the software engineers are recent migrants. Their ties are stronger. They send more money back.

As immigration to the US becomes tougher, these remittances will come down. Indians will send less money back. They'll buy fewer rupees. And the rupee will take a tumble.

Donald Trump is reshaping the US in a big way. For decades, the US has been the world's biggest consumer. They've imported manufactured goods from China and software engineers from India. Countries could always count the US as a reliable buyer of their exports.

That's about to change. This is globalisation in reverse. And if this change occurs as we expect it to, the rupee will suffer.

There isn't going to be a crash in the currency. This is going to occur over time. There will be plenty of up and down movements. Plenty of great trading opportunities. But the overall trend isn't good.

Now take a step back. As a trader, what should you do? For one, I don't recommend selling rupees and just waiting things out. You need to know the right times to enter and exit. You may even want to play pullbacks after a large fall in the currency.

My approach is to use a trading system. A trading system that identifies the right times to enter and exit the market. An approach that has proven to be reliable over a long period. More on this next time.


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6 Responses to "Trump's Next Target is the Rupee"
Ram
08 Feb, 2017
Mexico, Brazil and Canada are already serving as nearshore destinations for US clients. So some of the H1B staff could be re-located to these locations. However, due to the disruptive transformation that the IT industry is currently going thro'(due to tech like Digital, Cloud, Automation, AI etc.) that is "Consulting-heavy", IT service companies will have to invest a higher percentage of their Practice and Solution Design teams upfront, to generate demand first, before an assessment of how much of that work can be carved out for offshoring can be made. Q4FY strat planning period will predominantly guide for the following FY. So a combination of - tepid demand, very highly cost-optimized disruptive transformation technologies in-play, and Consulting-loaded and driven engagements - will put a lot of pressure on both topline and bottom line for IT services companies. Revision in H1B visa holders comp. is one of the factors, however, the weightage of the above factors + reskilling initiatives that the companies. have to persist with existing staff are bigger challenges to overcome. These are structural challenges and the Indian IT industry will not be able to wish them away in a hurry.Like 
arun prabhu
07 Feb, 2017
when salary doubles there will be all round europhia among existing H1B holders and they will pump in lot of discretionary spend towards India. Luxury real estate properties will be absorbed.Their luxury life style in US because of double salary will infuriate US co workers and make them ask for salary increment for themselves as well. With limited STEM interest among US Kids will put a lot of strain on innovation and ultimately some back door negotiations and ways to dodge the current rule will be invented by the best brains. US has no options left other than printing dollars and inflating their economy out of the mess they are inLike 
KD
04 Feb, 2017
What is foreign currency reserves of China. Did they built this by remittances? Why do not India strengthen its manufacturing base? Please stop looking at western countries for jobs for Indian youth. Rather than starting useless government schemes, please for God sake, create jobs. Like (1)
d.d. kochar
04 Feb, 2017
decision taken by President Trump is most logical and good for USA and its citizens. If an American can not get a job within America where else can he look for a job. American is for Americans and not to accommodate citizen of other countries. Similarly sovereignty of America is and should be the first priority of the president of the country. Hurray for President Donald TrumpLike (1)
Balakrishnan R
04 Feb, 2017
If the H1B visas do not reduce by half, India may get more remittances than earlier. This is because, the earnings by the soft engineers will go up as their salary is going to double and their roots are at India. Hence, I guess, there is a possibility to have increased remittances. Let us see what happens.Like 
Ravi
03 Feb, 2017
That is a good assessment of future trends. Waiting for opportunities. www.theteachings.inLike 
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