WEEKLY SYNOPSIS: 03/06/2022

Currency Map:

Brent Crude closed at USD 119 VS prior week month of USD 107. Gold closed at USD 1837.Nifty closed at 16584 on May end vs April close of 17102. 10 Year G-SEC Yield closed at 7.45%.

Major developments: USDINR traded in the 75.99-77.79 range last month and closed at 77.63 as against prior April close of 76.43. Rupee declined 1.57% m/m. EUR climbed 3.51% m/m and GBP climbed 2.24% m/m against Rupee. Indian benchmark Equity index declined 3.02% m/m. 10 Year G-SEC Yield closed at 7.45%. 1-year fwd premia is at 3.70% p.a.

USDINR had a subdued trading last week. GDP, Exports, Core sector growth and GST collection data were released last week. Indian GDP climbed 8.7% in 2021-22 as against contraction of 6.6% in 2020-21. In Q4, GDP climbed 4.1% y/y. Agri sector grew by 4.1%, manufacturing contracted 0.2%, mining grew 6.7% and construction sector grew by 2%. Trade, hotel, transport, communication grows 5.3% in Q4 as compared to 6.3% in preceding quarter financial services sector grows at 4.3% as compared to 4.2% in third quarter. Pvt final consumption expenditure grew by 1.77% and Govt consumption expenditure grew by 4.8%.

GDP growth for Q4 FY22 at 4.1 per cent reflects the impact of the Omicron wave, higher input costs and a high base in certain sectors from last year. Gross fixed capital formation was estimated at Rs 47.84 trillion in 2021-22, up from Rs 41.31 trillion in the preceding year. It grew by 5.1% in Q4.

Eight core sectors grew by 8.4% in April. GST Collections in May was reported at 1.41 lac Cr.

Indian exports climbed 15.46% in May to USD 37.29 bn. Imports climbed to USD 60.62 bn. Trade deficit climbed to USD 23.33 bn.

RBI’S June meeting is expected to hike rates further. Govt has taken steps like reduction of duties on Petrol, restriction on export of wheat, export duty on steel products, reduction of import duties on coking coal etc.,. These are likely to have sobering effect and help RBI’S fight against inflation.

USDINR is trading very steady in the last few weeks. RBI is likely to stem steep Rupee fall through intervention. If Euro climbs against USD, as ECB prepares to hike rates, Rupee could gain partially. However, Crude price is a big dampener. OPEC’S decision to increase supply is not satisfactory enough to make meaningful impact on prices.

In 2022-23 fiscal, FII’S have sold 52540 Cr of Equities till date and have sold Rs 2819 Cr of debt till date. In 2021-22, FII’S net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

FX reserves stands at USD 601.1 bn.

USDINR has supports at 77.48/77.27/77.15. If USDINR manages to break below 77.48, expect the pair to stabilise. Considering the rate hike talks by ECB, Rupee should stabilise by June/July.

Global developments: USD continued to maintain its bullish mode, notwithstanding marginal corrections. US data is still upbeat. ISM and employment data are strong enough to put Fed on track to tighten liquidity and raise rates. Fed members are in agreement for front loaded rate hikes. USD interest rates could climb to 3% by this year end.

US non-farm payroll employment grew 390k in May, above expectation of 325k. Prior month’s growth was also revised up from 428k to 436k. Overall non-farm employment was still down by -822k, or -0.5% from its prepandemic level. Unemployment rate was unchanged at 3.6% for the third month in a row, above expectation of 3.5%. Average hourly earnings rose only 0.3% mom, below expectation of 0.4% mom.

Focus is now on ECB meeting. ECB members are also in tune for lifting rates by July. ECB Governing Council member said that, “inflation is not only too high, but also too broad. This requires a normalization of monetary policy — I say normalization and not tightening.” He added that the normalization process should be “gradual but resolute”.

US CPI data is another major data release in coming week.

Currency range: USDINR: 77.48/77.27/77.15(support), 77.80 (resistance), EURINR:82/81 (support)/ 83.50/84.25 (Resistance), GBP/INR: 96-98.50, JPY/INR:.58-63

Suggestions: USD exports can be covered partially at 77.65+ .EURINR payables can be covered at 82.50. Receivables can be hedged at 83.50/84.25. GBPINR exports can be covered at 98+.

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