MONTHLY SYNOPISIS: NOV

Currency Map:

WT1 Crude: USD 50.93 vs 65.30 in Oct end.

Nifty: 10900 vs 10398 in Oct end.

Rupee has erased almost 50% off its calendar Year loss in just one month. Rupee gained almost 6% and Crosses gain were fully contributed by Rupee gain against USD. Steep decline in Crude prices and FII inflows in Nov contributed to Rupee gain as fear of expanding Current account deficit faded. Till Oct, it was estimated that Current account deficit would be around USD 80 bn in 2018-19 and it could be 2.8% of GDP. Fall in Crude could help deficit fall to manageable levels. Rupee was also aided by US FED Chairman’s dovish comments on interest rates. He said that interest rates are just below neutral rate. Markets interpreted this as a signal for pause in rates. Fed had earlier noted in September projections, median longer run projected federal funds rate was 3.0%. Central tendency was at 2.8-3.0%. Global stocks rallied and yields declined.

Indian Yields also declined as RBI injected more liquidity into the system. 10 Year G-SEC Yield has declined to 7.61% from is last month peak of 8.18%. With inflation moderating to 3.3% and GDP at 7.1% for  Q2, RBI may keep rates unchanged in its Dec meeting.

Global focus is on US-China trade talks and upcoming OPEC summit in Vienna. OPEC may cut production to stabilise Crude decline. IEA has given a gloomy picture on Oil supply/demand position which means that Crude rise, even if it happens due to production cut may not exceed the recent peak. Neverthelss, the recent fall is as parabolic as the rise was till Oct and hence calls for caution.

USDINR Volatility is likely to stay and big pullback rally in USDINR is still possible. USDINR movement will be a function of Crude prices, FII inflows (which could increase) if Fed intention is to pause rate hike in near future. Hence any USDINR rally in coming months will be a great incentive for long term USDINR Exports hedging.

FII’S have invested Rs 10721 Cr in Indian Equities in Nov . FII’S have bought Rs 2115 Cr of Indian debt securities in Nov till date . On a cumulative basis, FII’S have sold Rupees 26536 Cr of Indian Equities till date for this calendar year and have sold  Rupees 57204 Cr of Indian debt in this calendar year till date.

Equity indices had a spectacular turnaround in Nov as valuations at Nifty level of 10000 was attractive. FII’S also were nett buyers to the extent of around 1.5 bn USD. Fall in Oil and Rupee gain also helped to turn around the sentiment.

Important developments:

Indian developments:

1) Q1 GDP climbed 7.1% in Q2 , as against 8.2% in Q 1.

2) Trade deficit climbs to USD 17.13 bn in Oct as against USD 13.98 bn in Sept.

3) Fiscal deficit target has breached budget target.

4) Retail inflation cools to 3.3%.

5) GST collection has declined to 97500 Cr in Oct from 1.02 lac Crores in Sep.

6) RBI fx reserves stands at USD 393 bn.

Global developments:

1) Trade tension persists. US-China trade talks are taking place on Nov 30 th at G-20 summit.

2) Pound movement uncertain as UK PM presents Brexit deal to UK Parliament. If rejected, Pound could decline steeply.

3) China controls Yuan decline.

4) Crude has declined 43% in the last one month as producer’s increased supply and US waived Iranian sanctions for 8 countries including India.

Upcoming events:

1) Fed’s Dec meeting.

2) RBI meeting on Dec 5^th. Status quo likely.

3) Indian IIP and CPI data and trade deficit data.

4) UK Vote on Brexit deal

Outlook for Sept: USDINR has support at 69.10 and resistance could emerge at 71.50 on rally. EURINR decline is due to USDINR fall. Expect 78.50-82 range. GBPINR is expected to trade in the 88-92 range. JPYINR is expected to trade in the 60.50-64 zone.

Suggestion: USD imports be hedged at 69.10/68.80, EURINR imports be hedged on decline to 78.50 levels. USD Exports be hedged incrementally on rally to 71.50/72.50. EURINR exports be hedged on rally to 82.