MONTHLY SYNOPISIS: SEP 2020

Currency Map:

WT1 Crude: USD 40.22vs 42.61 in AUG 2020, Brent Crude at 41.69 vs 45.19 in AUG 2020.

Nifty: 11247, dn 1.2% m/m. Gold closed at USD 1885.

Indian 10 Year G-SEC yield closed at 6.04% .

Rupee traded in the 72.75-73.97 range in Aug. The pair closed at 73.77, registering a decline of 0.20% for Rupee.  EURINR closed at 86.50, down 1.06% m/m, while GBP declined 3.29% m/m. Yen gained 0.96% against Rupee.

Rupee declined to 73.98 from its high of 72.75 against USD. The pair had two way movement in the 73.15- 73.98 range. PSU banks bought USD at around 73.15 and inflows capped Rupee weakness at around 73.90. Indian Equity indices declined and then recovered steeply in the last few days of the month to close marginally lower on m/m basis.

Indian economy is on a steep recovery path. This was borne out by major macro indicators viz., GST Collection, auto sales, freight collection, petrol sales, fertiliser production, tractor sales and PMI (mfrg) indicator.

GST collections grew 4% y/y to Rs 95000 Cr. Rly freight revenue was up 13.5% and Exports climbed 5.3% y/y in Sept to USD 27.4 bn.Indian PMI (mfrg) reading rose to the highest level since 2012. Sept PMI(mfrg) was reported at 56.8, as compared to Aug data of 52, signalling ramping up of production. Maruti reported 34% increase in Sept sales as compared to last sept. Vehicle sales was reported at 152608 vis a vis 115452 last year. Hyundai reported 24% increase in sales. Except for Toyota, all major manufacturers reported increase in car sales. Bajaj reported 10% increase in Sept sales of two wheelers (441306). Enfield reported 4% increase y/y and Hero reported 17% increase y/y.. Petrol sales was up 2% y/y. NTPC reported 13% jump in July-Sep output. Digital payments was up 12% y/y.   

Indian Core sector index declined 9.6% in July compared to a year ago. In April, the index was down 37% , 22% in May and 12.9% in June.

Indian Current account posted a surplus of USD 19.8 bn in Apr-June period, partly due to lower imports and partly due to GDP contraction. In Jan-March, current account was USD 600 mn in surplus. CA surplus stood at 3.9% of GDP in Q1. This was against USD 15 bn CAD in the same period last year (2.1% of GDP). Trade deficit stood at USD 10 bn in Q1 vs USD 46.8 bn in the same period last year. BOP showed surplus of USD 19.8 bn.

Sep IIP and CPI data are awaited. RBI’S MPC  meeting on Oct 1 st has been deferred. RBI is expected to keep rates steady and stance accomodative.

FII’S nett sold Rs 5689 Cr ofIndian Equities in Sept t . FII’S nett bought Rs 3009 Cr of Indian debt securities in Sept . In this financial year, FII’S have nett bought Rs 79484 Cr of Equities and have sold Rs  34818 Cr in debt. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

Technically, Rupee is bullish now as it has below 200 day moving average. USDINR movement is still at the mercy of RBI. If RBI does not intervene, there is high probability of Rupee testing 72.40. USDINR pair will face resistance at 73.90/74.40.Important levels are 72.70/72.40 on the downside and 73.90/74.40 on the upside.

Global developments:USD gained against majors . EUR/USD moved closer 1.16. Crude Oil has started to decline after holding above USD 40.  Gold declined to USD 1865.

Global focus was on 1) Corona’s second wave in Europe, 2) US Stimulus pacakge, 3) US Presidential election, 4) Fed’s rate communication, 5) Economic indicators.

Global economic indicators showed that fiscal support is inevitable for sustainable recovery. This was communicated by Fed Chairman in his testimony to US Congress. US Congress is still debating on details of the package.

Fed said it would keep interest rates near zero until inflation is on track to “moderately exceed” the central bank’s 2% inflation target “for some time,” with the aim of offsetting years of weak inflation and allowing the economy to add jobs for as long as possible. Fed Chairman said that economic recovery is ongoing at slow pace and requires continued Fed and Govt policy support.                                                                                   

On a brighter note, OECD revised up 2020 global GDP forecast, expecting to contract -4.5%, 1.5% higher than June’s single hit scenario. US economy is expected to contract -3.8% only. Eurozone (at -7.9%, up by 1.2% from June), Japan (at -5.8%, up by 0.2%), UK at -10.1% (up by 1.4%) are just revised up slightly. India is expected to contract -10.2%.

OECD said: “After collapsing in the first half of the year, economic output recovered swiftly following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses. Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs. But the pace of recovery has lost momentum over the summer. Restoring confidence will be crucial to how successfully economies can recover, and for this we need to learn to safely live with the virus.”

Eurozone GDP contracted -11.8% qoq in Q2, slightly better than prior estimate of -12.1% qoq.Japan Q2 GDP contraction was revised down to -7.9% qoq, from -7.8% qoq. In annualized term, GDP contracted -28.1% versus preliminary reading of -27.8%.

ECB maintained status quo, but was upbeat on recovery. GDP is expected to contract by -8% this year as against -8.7% in last update. Headline inflation is expected to steady at 0.3% this year. The reading is expected to improve to 1% (up from +0.8% in June) in 2021 and 1.3% in 2022.

ECB President noted that “the incoming data since our last monetary policy meeting in July suggest a strong rebound in activity broadly in line with previous expectations”. She added that “domestic demand has recorded a significant recovery from low levels” but warned that “elevated uncertainty about the economic outlook continues to weigh on consumer spending and business investment”. ECB Chief also added that Euro strength’s impact on inflation will be carefully assessed, without committing on the present trend and strength of EURO.

Pound crashed as BOE hinted at possible negative rates.

Currency outlook: Expect USDINR to trade in the 72.40-73.80 range.

EUR/INR is expected to trade above 85.50. GBPINR is expected to find support at 93/90 and possibly trade upto 96.50 levels. JPYINR could consolidate in the 68-71 range.

Outlook for OCT 2020:

Suggestion: USD imports be hedged at 72.70. Exports can be hedged closer to 73.80/74.40. EURINR imports can be hedged closer to 85.50. GBP exports can be hedged closer to 96+ levels.

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