MONTHLY SYNOPISIS: Mar 2020

Currency Map:

WT1 Crude: USD 20.48vs 45.25 in Feb 2020, Brent Crude at 22.44 vs 50.08 in Feb 2020.

Nifty: 8597, dn 23% m/m. Gold closed at USD 1571.

Indian 10 Year G-SEC yield closed at 6.14% .

Rupee traded in the 72.03-76.30 range in March. The pair closed financial year ending 2020 at 75.66, gain of 9.4% y/y, 6% q/q and 4.83 % m/m for USD.  EURINR closed at 82.72, up 4.06% m/m, while GBP gained 1.67% m/m. Yen climbed 4.16% m/m against Rupee.

Rupee’s decline accelerated as Covid-19 pandemic intensified globally and started its spread in India. PM announced a 21 day lock down to slow the spread and augment medical facilities. Indian Equity markets slumped 23% m/m and 26% y/y. Rupee fall was checked by RBI intervention at around 76. RBI has sold USD 16 bn + to stem the Rupee fall. Earlier this Year, RBI was mopping up USD and FX reserves swelled to USD 487 bn. RBI’S USD supply was necessitated by whopping FII pull-out. FII’S were net investors till Feb end. In March alone, FII’S sold more than 1 lac Cr of investment.FII’S nett sold  Rs 58361 Cr of Indian Equities in March . FII’S have nett sold Rs 58110 Cr of Indian debt securities in March. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

With Global recession looming, pressure on Rupee may continue. However, the saving grace is the steep decline in crude prices which has declined over 60% m/m. Exports deceleration and FII pullout could be balanced by the steep reduction in import payment of oil supplies.

Govt and RBI announced measures to support the poor and borrowers. However, Govt measures may be well short of the economic woes caused by the pandemic. FM announced deferment of statutory compliances till June end.

RBI cut repo rate by 75 bps to 4.4% and reverse repo by 90 bps to 4%. CRR was cut by 1% to 3%. RBI’S monetary easing and change in reserve ratios will free 2.7 lac Cr. Banks are mandated to invest extra CRR liquidity in corporate CP’S of investment grades. EMI’S under term loan is deferred for 3 months and interest on working capital is also defered by 3 months. Banks are also advised to reassess working capital requirement.

Macro-economic developments in March 2020: Indian CPI eased to 6.58% in Feb, as vegetable and food prices eased. IIP climbed 2%, while manufacturing grew by 1.5%. Indian CAD shrunk to 0.2% of GDP (USD 1.4 bn) in Q3. FDI rose to USD 10 bn in Q3. RBI announced USD 2 bn USD swap to mitigate USD volatility.Indian GST collections declined to 97500 Cr in March.

Global event was dominated by Corona virus fear.US has reported 1.81 lac cases and there are no signs of abatement in Europe. Oil prices continued to crash, as demand outlook grew gloomier due to lock downs. Govts and central banks continued to pour support to their respective economies. US has finalised USD 2trn fiscal package which includes direct cash transfer. Fed slashed rates to zero and announced unlimited QE and various credit access instruments. BOE, Bank of Canada and RBA announced rate cuts. European Central Bank kicked off a 750 billion euro ($820 billion) emergency bond purchase scheme.BoJ announced further monetary easing to counter the economic impact of coronavirus pandemic. In particular, annual pace of ETF purchase is doubled from JPY 6T to JPY 12T. J-REIT purchases are also doubled to JPY 180B per year.

Various multilateral financial institutions have projected Global recession. The best case case scenario is 0.1% Global GDP growth. India may grow by 2.5% according to some rating agencies. However, Fed Chairman sounded cautiously optimistic as he said that though US is in recession, it is different from a “normal recession” as “there is nothing fundamentally wrong with US economy”. And, “quite the contrary, US is starting from a very strong position”. Also, it’s not a “typical downturn” and “at a certain point, we will get the virus under control and confidence will return.”

Since the situation is unprecedented and evolving, it is the hope and prayers that World will recover from this shock and grief at the earliest.                                    

Currency outlook: Expect USDINR to climb to 77/78in coming weeks with support at 74.40.

EUR/INR is expected to rally with support at 80.50. GBPINR is expected to find support at 89.75 and possibly climb past 95 levels.

JPYINR could consolidate in the 69-73 range.

Outlook for Apr 2020:

Suggestion: USD imports be hedged. Exports can be hedged between 77-78 levels. EURINR exports can be hedged closer to 85. EURINR imports be covered on decline to 81.50. GBP exports can be hedged closer to 95+ levels