WEEKLY SYNOPSIS: 15/11/2019

Currency Map:

Brent Crude closed at USD 63.34 VS prior week close of USD 62.94.

Nifty closed at 11895 vs prior week close of 11908.

10 Year G-SEC Yield closed at 6.52.

Major developments:It was a big range trading week for USDINR. The pair traded in the 71.31-72.25 range. It closed at 71.79, registering a gain of 0.71% for USD. GBPINR climbed 1.32%, EURINR also climbed 0.76% w/w. Euro gain is contributed by rally in USDINR pair.

Rupee declined 52 ps w/w. Rupee recovered from 72.24 as RBI sold USD along with selling by some foreign banks. Last week Rupee decline could be attributed  to higher inflation data, poor IIP data, paring of sell positions by USD sellers, stronger USD against majors and fears of entrenched GDP slow down. Moody’s action in changing outlook to negative from stable and continued USD buying by RBI at lower levels are also contributory factors to Rupee weakness. However, overall inflows is good and CNY is steady against USD. Rupee seems to have broken coorrelation with CNY.

PSU banks rallied on Friday as Supreme Court cleared Essar’s acquisition by Arcelor Mittal. PSU banks stand to recover significant amount of dues. Telecom companies Bharti and Vodafone reported huge losses. However there are reports that Govt is considering relief to beleaguered telecom companies. There are also reports that Govt may fix a floor on call and internet charges.

Macro-economic data was disappointing.Indian IIP declined -4.3% in Sept, steepest decline since 2011. IIP has climbed 1.3% in Apr-Sept 2019 as against 5.2% in the same period last year. Mfrg sector declined -3.9%, mining declined -8.5%, consumer durables shrunk -9.9% and Capital Goods sector declined -20.7%.

Indian CPI breached RBI’S comfort zone of 4% and climbed to 4.62%, due to higher food inflation. Food inflation climbed to 7.89% vs 5.1% in Sept. Core inflation moderated to 3.5% from 4%. Vegetable prices climbed 26% m/m.

Indian exports declined 1.1% to USD 26.4 bn in Oct. Imports contracted 16.3% to USD 37.4 bn. Trade deficit is at USD 11 bn. Oil imports declined 31.7% in Oct to USD 9.6 bn. Exports in Apr-Oct is at USD 186 bn (down 2.2%) and Imports has declined 8.4% in Apr-Oct to USD 280.7 bn.

FII’S nett bought  Rs 12445 Cr ofIndian Equities in Nov . FII’S have nett bought Rs 72695 Cr of Indian Equities in this calendar Year till date. FII’S have nett bought Rs 3710 Cr of Indian debt securities in Nov. FII’S have nett bought Rs 46868 Cr of Indian debt in this calendar year till date.

Global developments:

-Trade optimism helped US Equities extend its rally, even as FX markets remained quiet. US retail sales data continued to show strength, though manufacturing data is disappointing.From the Federal Reserve’s perspective, the data are evolving largely in line with their economic forecasts. Inflation is at target and the consumption remains healthy. In addition, past rate cuts are moving through the economy, with the impacts most noticeable in housing.

Eurozone GDP grew 0.2% qoq in Q3, unchanged from Q2, matched expectations. Over the year, GDP grew 1.2% yoy. Employment grew 0.1% qoq, below expectation of 0.2% qoq. German GDP grew 0.1% qoq in Q3, beat expectation of -0.1% qoq.

There are no major driving force, except for the possibility of US-China trade deal being completed in Dec. Focus is on Fed minutes.                                                                  

Important developments in coming week:Fed and ECB minutes

Currency range forecast for coming week:

USDINR:71.30-72.25, EURINR: 78.75-79.50, GBPINR: 91.50-93, JPYINR: 65-67.

Suggestion: Cover 1-2 month USD import payables on dips to 71.30/71.10. USD receivables can be hedged at 72.25. EURINR payables can be hedged at 78.75. EURINR receivables can be hedged closer to 79.50. GBPINR receivables hedging can be done.