Currency Map:

Brent Crude closed at USD 45.54 VS prior week close of USD 50.08

Nifty closed at 10989 vs prior week close of 11201.

10 Year G-SEC Yield closed at 6.18%.

Major developments:It was a volatile week for USD/INR. USD/INR traded in the 72.03-74.08 range. It closed at 73.78, registering gain of ONE Rupee and Sixty one paisaw/w for USD. EURINR climbed 5.10% and GBPINR climbed 3.34%.

Rupee declined as Corona virus scare hit Indian shores also. Till last week, India was considered as an hedge against COVID-19. On Friday, Rupee hit 74.08 as Yes bank restructuring and moratorium aggravated negative sentiments. Fall in Crude prices was shrugged off and the focus was on virus and Yes bank problems. RBI has released a draft for Yes bank restructuring and SBI along with LIC or consortium of banks is likely to acquire stake. Though FM and RBI Governor have assured of swift revival plan, investors are worried over potential implications of repeated failures in banking and NBFC sector. The ripple effect of a rapidly declining market may be felt in other sectors and institutions if there is further delay or collapse of any other entity. Problems in IL&FS, DHFL, India bull housing and LVB have all stoked further fears on the health of the financial sector. Legacy issues are yet to fade. RBI has USD 476 bn FX reserves. Though RBI Governor has hinted at appropriate action to maintain financial market stability, there has been no major intervention to contain the volatility that has gripped both the FX and Equity markets.

FII’S nett sold  Rs 5656 Cr ofIndian Equities in March till date . FII’S have nett sold Rs 1807 Cr of Indian debt securities in March till date. Indian CPI and IIP are due for release in coming week.                                                                                                               

Global developments:USD declined against Euro and Yen. Chinese Yuan gained against USD. US 10 Year yield decline to 0.7%, 3 m Libor is below 1%, Brent crude declined over 10% last week and Equity markets have declined 15% from their Feb all time highs.

The spread of corona virus is unabated. With US and Europe reporting new cases, there is nothing but fear in the market. Data focus has gone as is evident from markets attitude to a robust US employment data. Equity markets decline continued despite 50 bps rate cut by Fed. Bank of Canada also cut rates by 50 bps.

Crude declined as OPEC and Russia failed to agree on supply cut of 1.5 mbpd.

IMF said that global growth in 2020 will “dip below” 2.9% for 2019. That is, at least 0.4% worse than 3.3% growth projection for 2020 as estimated in January. IMF announced a USD 50B aid package for low-income and emerging market countries, to help combat the impact of the Wuhan coronavirus global outbreak. 

G7 finance ministers and central bank policymakers said on last Tuesday they were “ready to take actions, including fiscal measures as appropriate, to aid in the response to the virus and support the economy” amid the coronavirus outbreak, according to a statement. The statement disappointed for lack of details and coordinated response.

Fed cuts rates by 50 bps in an emergency meeting. Fed statement said that “The fundamentals of the U.S. economy remain strong,” “However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Federal Open Market Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent.”

Important developments in coming week: Indian CPI, IIP and US CPI

Currency range forecast for coming week:

USDINR:72.40-74, EURINR: 80.70-84.50, GBPINR: 94.50-98, JPYINR: 66.50-71.

Suggestion: Cover 1 month USD import payables on decline to 72.40. USD receivables can be hedged at 74. 1 M EURINR payables can be hedged at 82.25/80.70. EURINR receivables can be hedged closer to 84-85 levels. GBPINR receivables hedging can be done on any rally to 97/98.