MONTHLY SYNOPISIS: JAN 2021
|Currency Pairs||JAN CLOSE||DEC CLOSE||% change( M/M)|
|JPY/INR||69.68/100 YEN||70.89/100 YEN||-1.70|
WT1 Crude: USD 52.10 vs 48.40 in DEC 2020, Brent Crude at 55 vs 51.44 in DEC 2020.
Nifty: 13634, dn 2.4% m/m. Gold closed at USD 1849.
Indian 10 Year G-SEC yield closed at 5.94% .
Rupee traded in the 72.78-73.50 range in JAN. The pair closed at 72.95, registering a nominal gain of 0.16% for Rupee. EURINR closed at 88.40, dn 1.51% m/m, while GBP closed flat m/m. Yen declined 1.70% against Rupee.
Indian economy continued to gain traction with impressive Q3 Corporate results. Power demand and freight movement points to economy swinging into positive mode after 2 quarters of economic decline. Latest economic survey projects GDP to shrink 7.7% in this fiscal, but expand to 10-12% in next fiscal. IMF has also upgraded Indian GDP growth to 11.5% for next fiscal. Focus is now on budget. Indian Equity markets reversed its rally in the last few days of Jan to decline by 2.4% m/m. Fear of change in Capital gains tax may have contributed to last few days of decline. With vaccination progressing steadily and corona infection cases declining, consumer confidence is back on track.
FII increased investment in Jan, though there was selling in last few days. FII’S nett bought Rs 18855 Cr of Indian Equities in Jan . FII’S nett sold Rs 3473 Cr of Indian debt securities in Jan . In this financial year, FII’S have nett bought Rs 230647 Cr of Equities and have sold Rs 25262 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.
Indian FX reserves swelled to USD 584 bn by first fortnight of Jan.
Budget proposals may be the key driver in coming weeks. Focus is likely to be on health sector, housing and deepening of incentives for mfrg and infra spending.
Fiscal deficit and Govt borrowing programme will be watched carefully for its implications on interest rates. RBI is meeting on 5 th Feb and is likely to pause even though inflation has softened.
Indian CPI eased to 4.59% in Dec. The decline in retail inflation in December was mainly due to easing food prices. The Consumer Food Price Index (CFPI) or the inflation in the food basket eased to 3.41 per cent in the month of December, down from 9.50 per cent in November.
IIP contracted -1.9% in Nov. Mfrg sector declined -1.3%, mining declined -7.3%, electricity sector grew by 3.5%.
Indian exports bounced back in Dec to clock USD 27.2 bn. Imports grew 7.6% to USD 42.6 bn.
Technically, USDINR has strong supports at 72.75/72.30/71.50. It has to clear 74.30 to resume long term strength for USD.
Global developments: USD recovered against Euro marginally due to expectation of higher fiscal stimulus. New US President has proposed USD 1.9 trn fiscal stimulus measures to support household and small and medium business.
There is no let up in corona cases in US and EU. Vaccination process is too slow for comfort. The impact of new lockdown measures has been felt in last Quarter GDP growth in EU and US. Though US GDP advance estimate missed consensus to grow by 4% q/q, it is still better than EU growth. German GDP grew only by 0.1% q/q.
Major central banks reiterated easy monetary policy and maintained status quo.
ECB left the “very accommodative monetary policy stance” unchanged as widely expected. Main refinancing rate was held at 0.00%, marginal lending rate and deposit rate at 0.25% and -0.50% respectively. Envelope of the “pandemic emergency purchase programme (PEPP)” is kept at EUR 1850B, running through at least March 2022. Asset purchase programme (APP) will continue at monthly net purchase of EUR 20B.
Bank of Japan left all the stimulus measures intact. The policy rate stays unchanged at -0.1%, while asset purchases will continue in order to keep the 10-year JGB yields at around 0% (yield curve control).
FOMC pointed to moderating growth in the virus-stricken economy. Fed reiterated its commitment to keeping interest rates low and asset purchases robust as the economy weathers the COVID-19 pandemic.
USD weakness could persist on a milder scale in 2021 and reversal can happen if market attention shifts from low yield differential to relative economic performance.
Currency outlook: Expect USDINR to trade in the 72.50-73.50 range in Feb 2021.
EUR/INR is expected to trade between 87.50-89.50. GBPINR is expected to trade in the 97.50-100.50 levels. JPYINR could consolidate in the 69-72 range.
Outlook for FEB 2021:
|Currency pairs||85% confidence range for Jan||Most likely range|
|JPY/INR (100 Yen)||69-72||69-72|
Suggestion: USD imports be hedged at 72.75/72.50. Exports can be hedged at 73.30/73.50. EURINR imports can be hedged closer to 87.80/87.50. GBP exports can be hedged closer to 100+ levels.
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