Currency Map:

Currency Pairs  NOV CLOSE OCT CLOSE % change( M/M)
USD/INR 74.04 74.11 -0.09
EUR/INR 88.28 86.94 1.54
GBP/INR 98.91 95.63 3.42
JPY/INR 71.02/100 YEN 71.25/100 YEN -0.32


WT1 Crude: USD 45.53 vs 35.80 in OCT 2020, Brent Crude at 48.28 vs 37.89 in OCT 2020.

Nifty: 12968, UP 11.5% m/m. Gold closed at USD 1783.

Indian 10 Year G-SEC yield closed at 5.91% .

Rupee traded in the 73.74-74.88 range in Nov. The pair closed at 74.04, registering a nominal gain of 0.09% for Rupee.  EURINR closed at 88.28, up 1.54% m/m, while GBP climbed 3.42% m/m. Yen declined 0.32% against Rupee.

It was a stellar month for Indian Equities and FII flows. FII flow surged to 65,000 Cr in Nov alone. RBI absorbed over USD 20 bn in 1 month as FX reserves swelled to USD 575 bn. RBI’S action has stemmed Rupee gains, notwithstanding USD decline against majors.

FII’S nett bought Rs 61712 Cr of Indian Equities in Nov . FII’S nett sold Rs 1314 Cr of Indian debt securities in Nov . In this financial year, FII’S have nett bought Rs 158910 Cr of Equities and have sold Rs  32346 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.

Indian Q2 GDP contracted -7.5%, better than expected due to robust agri growth and revival in manufacturing sector. Services sector continues to be a drag. In Q1, GDP contracted -23.9%. Agri grew by 3.4% and manufacturing grew by 0.6%. Construction sector contracted by -8.6%, while Power, water and and utility sector grew by 4.4%. Transport and communication services sector declined by -15.6%. Private consumption declined -11.5%. Govt spending declined to 10.9% of GDP as against 18.1% in Q1.

Core sector declined -2.5% in Oct.

Indian IIP climbed 0.2% in Sept as against -8% in Aug. Mfrg declined -0.6%. Mining climbed 1.4% and Power sector climbed 4.9%. CPI inflation jumped to 7.61% in Oct vs 7.27% in Sep. Food inflation climbed to 10.16% in Oct as against 9.8% in Sep. Core inflation also climbed to 5.47% in Oct.

Indian trade deficit for Oct 20 was reported at 8.71 bn US as against USD 11.75 bn in Oct 2019. Exports declined 5.12% in Oct to USD 24.89 BN. Imports fell 11.53% to USD 33.6 bn.

In Apr-Oct period, exports declined 19.02% to USD 150.14 bn, while imports declined 36.28% to USD 182.29 bn. Trade deficit moderated to USD 32.15 bn.

Govt announced more measures to spur growth. Production linked incentive scheme to cover 10 sectors with an outlay of 1.35 lac cr was announced. Other measures included 1) extension of Credit guarantee scheme, 2) Expansion of companies under ECGLS to include turnover of Rs 500 cr, 3) Employment incentives through EPFO, 4) Tax change for house buyers below the circle rate, 5) Cut in guarantee amount for Govt and PSU projects, 6) Increased outlay for urban housing uner PM Awas yojana, 7) Increase in allocation under MNREGA, 8) Funds for covid vaccine research, 9) Increase in NIIF outlay.

High frequency indicators and GST collection offers hope for a V shaped recovery. RBI Governor said that economic revival is exceeding expectation.

Focus is now on RBI Credit policy. RBI is expected to maintain status quo.

Technically, Rupee is bearish now as it has broken 74 levels. USDINR movement is still at the mercy of RBI. USDINR has supports at 73.75/73.55 levels on the downside and resistances at 74.40/74.90 and 75.30.

Global developments: USD declined against majors. EUR/USD is near its recent peak of 1.20. Pound is also strong. Crude Oil climbed to USD 45+.  Gold declined to USD 1783.

Global focus is on 1) Corona’s second wave in US and Europe, 2) Vaccine hopes, 3) Fiscal stimulus in US.

US election verdict has gone in favor of Mr Biden. He has appointed former Fed Chairperson Yellen as next US Treasury secy. She is considered dovish and oriented towards fiscal stimulus. However, if Republicans control senate, it may be difficult to push for more stimulus.

Vaccine hopes has spurred further gains in Equities due to enthusiasm over revival in travel, leisure and entertainment industries. Oil rally can also be attributed to vaccine progress.

US economic data continued to reflect resilience in the economy. US business activity across both manufacturing and services rose in November at the strongest rate since March 2015. PMI Composite rose to 57.9, up from 56.3, a 68-month high. US growth is dependent on income support which is set to expire by Dec. Recent data on income and spending highlighted the fading effect of income support and the slowing momentum in spending.

EU PMI Composite dropped to 45.1, down from 50.0, also a 6-month low.

FOMC minutes showed that members pledged to continue monetary support as the pandemic continues to cast uncertainty over pace of recovery. Fed Chairman warned of the “significant” downside risk in the economy, “especially in the near term” due to resurgence of coronavirus infections. “The concern is that people will lose confidence in efforts to control the pandemic and they will pull back from activities that they think might put them at risk of infection,” he said. He added that Fed is “strongly committed to using all out tools” to support the economy.

Currency outlook: Expect USDINR to trade in the 73.55-74.65 range.

EUR/INR is expected to trade between 87-89. GBPINR is expected to trade in the 96.50-100 levels.  JPYINR could consolidate in the 69-72 range.

Outlook for DEC 2020:

Currency pairs 85% confidence range for Sep Most likely range
USD/INR 73.55-74.65 73.55-74.90
EUR/INR 87-89.50 87.80-89
GBP/INR 96-100 96-100
JPY/INR (100 Yen) 69-72 69-72

Suggestion: USD imports be hedged at 73.75/73.55. Exports can be hedged later or on spike to 74.65/74.90.EURINR imports can be hedged closer to 87.80/87.50. GBP exports can be hedged closer to 100+ levels.

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