MONTHLY SYNOPISIS: APR 2021

Currency Map:

WT1 Crude: USD 63.48 vs 59.20 in MAR 2021, Brent Crude at 67.13 vs 63.18 in MAR 2021.

Nifty: 14631, DN 0.4% m/m. Gold closed at USD 1768.

Indian 10 Year G-SEC yield closed at 6.03% .

Rupee traded in the 73.20-75.34 range in April. The pair closed at 74.07, registering a decline of 1.31% for Rupee.  EURINR closed at 89.60, up 4.45% m/m, while GBP climbed 2.22% m/m. Yen climbed 3.11% against Rupee. USDINR fwd premia declined with 1 year premia softening to 4.7% annualised.

India is now facing its biggest test against corona infection. The pandemic which was well under control till March end, broke loose and has hit all states badly. Though vaccination is progressing in an uneven manner, the fight to contain the spread has resulted in lock downs in many states. Global community has come to the rescue in aid supplies. The intensity and spread has taken medical community and Govt planners by surprise. Before the advent of new wave, most institutions upgraded Indian growth rate for this year. As per IMF, Indian growth is expected to be 12.5% in 2021.

The economic recovery is being threatened by the infection spread. Indian economy was on the verge of big recovery as is evident by April GST collections. GST collections hit record high of Rs 1,41,384 Cr in April. This is 14% higher than March 2021. Core Sector output grew 6.8% in March 2021. Power demand climbed 41% last month. Lock downs have held back auto sales in April. Maruti reported 4% decline in April sales as compared to March 21. Tata Motors sales declined 41% in April as compared to March 2021. Corporate earnings for last quarter have come well ahead of expectations. Reliance reported record profit of 53,739 CR last year.                                                                                      

RBI maintained status quo on rates. Repo was left unchanged at 4%. RBI maintained accommodative stance and expects GDP to climb by 10.5% in 2022. RBI announced 1 lac cr buying of G-SEC’S. This move triggered steep decline in Rupee to 75.30.

Indian Exports jumped 58% to USD 34 bn, highest export data. Imports also jumped to USD 48 bn. March trade deficit stands at USD 14 bn. March CPI climbed 5.52% as against 5.03% in Feb. Core inflation climbed to 6.09% from 5.6%. Average inflation for last fiscal stood at 6.2%. IIP Contracted -3.6% in Feb. Indian WPI inflation climbed steeply to 7.39% in March, up from 4.17% in Feb. 10 Year G-SEC yield spiked to 6.23%. However, it has retraced back to 6.03% at close.

Rupee’s trajectory will depend on how fast infection can be contained. USD’S performance against majors, spike in US Yields and FII inflows into Equity markets will be other factors to watch. Since US is likely to be the first major country to recover due to vaccination coverage, USD could start climbing against crosses. This will weigh down on Rupee. Hence, expect USD/INR to trade in the 73.80-75.30 range with downward bias for Rupee. RBI’S intervention will the only factor to prevent Rupee slide past 75.35.

Imports should be hedge for 3 months at around 74-73.65 range.

Global developments: It is becoming clear that US is on the fast lane to recovery as health condition improves due to higher vaccination coverage. Incoming data suggests that consumer spending will be robust due to fiscal stimulus and pay checks. US GDP climbed 6.4% in Q1 as against 6.1% expectation. US GDP climbed 4.3% in Q4 of last year. Growth was due in large measure to the $1.9 trillion stimulus package approved by Congress earlier in the year that distributed a new round of stimulus checks to households. Consumer spending grew at 10.7% annualized. US consumers are sitting on $2.2 trillion in “excess savings” through March, which is a considerable amount of dry powder at their disposal to fuel what is shaping up to be a consumer-led recovery.

Fed left its benchmark rate unchanged, and said that while the pace of recovery has improved, there was still a long way to go until the economy achieves its inflation and labor market objectives. “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement,” the Fed said in a statement.

Eurozone GDP dropped -0.6% qoq in Q1, better than expectation of -0.8% qoq. German GDP contracted -1.7% qoq in Q1, worse than expectation of -1.5% qoq. ECB left monetary policy unchanged and “reconfirmed its very accommodative monetary policy stance”. Main refinancing rate, marginal lending facility rate, and deposit rate are held at 0.00%, 0.25%, and -0.50% respectively. The pandemic emergency purchase programme (PEPP) will continue with an envelope of EUR 1850B, “until at least the end of March 2022”. It also expects PEPP to be carried out at a “significantly higher pace” during the current quarter. ECB Chief said that while Eurozone real GDP could have contracted again in Q1, data pointed to a “resumption of growth” in Q2. Progress with vaccinations, should “pave the way for a firm rebound in economic activity in the course of 2021”.

BoJ kept monetary policy unchanged today as widely expected. Under the yield curve control framework, the short-term policy interest rate is held at -0.1%.

IMF upgraded growth forecast for the advanced economy and the whole world in 2021. Global output growth forecast is raised by 0.5% to 6.0% in 2021, and by 0.2% to 4.4% in 2022. US growth is upgraded by 0.8% to 5.1% in 2021, and by 0.5% to 3.6% in 2022. Eurozone growth was raised slightly by 0.2% to 4.4% in 2021, and by 0.2% to 3.8% in 2022.

The global focus will be on the trajectory of corona infection and the economic recovery. US yields are likely to increase as growth gets entrenched and the unemployment rate declines. US Yield rally will be helpful for USD to climb against crosses.

Currency outlook: Expect USDINR to trade in the 73.65-75.35 range in May 2021.

EUR/INR is expected to trade between 88-90.70. GBPINR is expected to trade in the 100.70-104 levels.  JPYINR could consolidate in the 67-70 range.

Outlook for Mar 2021:

Suggestion: USD imports be hedged at 73.80. Exports can be hedged closer to 75.30. EURINR imports can be hedged closer to 88.50/87.50. GBP exports can be hedged closer to 103.50+ levels.

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