WEEKLY SYNOPSIS: 15/05/2020

Currency Map:

Brent Crude closed at USD 31VS prior week close of USD 28.

Nifty closed at 9136 vs prior week close of 9251.

10 Year G-SEC Yield closed at 6.08%.

Major developments:USDINR traded in the 75.27-75.95 range and closed at 75.58, almost unchanged. EUR and GBP declined against Rupee. Indian Equity markets declined 1.24% w/w basis. 10 Year G-SEC Yield inched higher to 6.08%.

The week was dominated by PM’S announcement of Rs 20 lac Cr economic package. FM has announced details of the package covering MSME’S, Agri sector, tourism, civil aviation, migrant workers,private sector participation in mining, new airport developments, space programs and higher FDI in defence manufacturing. More measures are expected. Govt is also set to unveil measures covering labor, land and systems. Lock down is set to be extended with more relaxations and production and services are set to resume partially. Major announcements include credit guarantees to loans to MSME’S up to Rs 3 lac Cr, investment in NBFC debt papers, equity support to MSME’S, 1 lac Cr for development of agri infrastructure, one nation-one ration card, affordable rent housing schemes for urban poor and migrant workers, extension of credit subsidy for buying affordable housing, new regulatory framework for contract farming, amendment to essential commodities act , free interstate movement of agri produce and better price realisation through e- portals, extension of Kisan credit card, marketing fund for branding and promotion of regional agri products and more PDS grains for migrant workers.

FM announced hike in FDI in defence manufacturing, ban on imports of arms that can be manufactured locally, Upgradation of industrial infrastructure and connecttivity, commercial mining of coal, enhancing private investment in mineral sector and construction of world class airports through PPP and privatisation of power distribution companies in union territories, private sector participation in space launches and satellite services were other major measures announced in fourth tranche.

FM has mentioned that Govt is providing liquidity and stimulus measures to help sectors and individuals and is not in favour of entitlements.

Indian IIP declined -16.7% in March. Mfrg was down 20.6%, electricity output contracted 6.8%. For the full fiscal year 2019-20, IIP contracted 0.7% as against expansion of 3.8% in 2018-19.

Global developments:Global markets continued to remain on edge due to 1) Covid’s intensification and its negative impact, 2) US President’s statement that he could even cut off relationship with China, 3) Fed Chairman’s statement as he warned of a “significantly worse” U.S. recession than any downturn since World War Two because of coronavirus pandemic fallout.

Markets which have run up due to liquidity and fiscal measures have turned cautious as the virus is yet to peak and on concern over deteriorating US- China relationship. US President is likely to keep China as the target as election nears and he is considering options of blocking US pension funds from investing in Chinese stocks or restricting the access of Chinese companies to US capital markets.

The dilemma of lifting lockdown early, trade tensions and Fed’s appeal to loosen fiscal policies are the events playing out in US, even as 36 mn Americans have lost their jobs. Job market has erased all the gains made since 2011.

Eurozone GDP contracted -3.8% qoq in Q1. EU GDP contracted -3.3% qoq. Both are worst declines since the series started in 1995.

Important developments in coming week:FOMC minutes

Currency range forecast for coming week:

USDINR:74.90(support), EURINR: 81.50(support), GBPINR: 92.50(support), JPYINR: 66.50-71.

Suggestion: Cover USD import payables on decline to 75.30/74.90.USD receivables can be hedged at 76.10/76.40+.1 M EURINR payables can be hedged at 82/81.75. EURINR receivables can be hedged closer to 83.50/84. GBPINR receivables hedging can be done on any rally to 94/94.50.