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Brent Crude closed at USD 79.80 VS prior week close of USD 86.10. Gold closed at USD 1878. Nifty closed at 17854 vs Nov close of 17604. 10 Year G-SEC Yield closed at 7.27%.

Major developments: USDINR traded in the 81.49-82.31 range last week and closed at 81.83 gain of 29 ps for USD as against prior week close of 81.54. In Jan, USDINR pair closed at 81.93 as against Dec close of 82.73. EUR climbed 1.07% w/w and GBP declined 0.47% w/w against Rupee. Indian benchmark Equity index climbed 1.42% w/w. 10 Year G-SEC Yield closed at 7.27%. 1-year fwd premia is at 2.35% p.a. FX reserves stands at USD 576.75 bn as on Jan 27 th. 

Indian market movements were dominated by Union budget and news on Adani group. Rupee declined as investor sentiment soured on steep fall in Adani group shares. Sentiment was lifted after SBI and LIC clarified on their exposure to Adani group. It was further cemented by FM’S interview as she clarified that Indian financial system is strong. RBI also stated that lending by banks to Adani group is as per norms and within permissible limits.

Earlier, in the week, Union budget was acknowledged as realistic and touched many important sectors. Budget focussed on Capital expenditure in infra projects and reduced revenue expenditure with lower allocation to MNREGA and Fertiliser/Food subsidy. FM has sought to encourage shift to new tax regime by IT payees. Market borrowings were slightly lower than expected at 11.8 lac Cr. FM has gone for fiscal consolidation with an attempt to bring it down to 5.9% in 23-24.

Affordable housing, Green hydrogen, Artificial intelligence, Agri startups, Pharma R&D, expansion of Digilocker, PAN as common business identifier were the other major features of the budget.

Indian economic survey expects GDP to climb between 6 and 6.8% in 23-24 fiscal. Indian economy is robust and is expected to be supported by domestic demand and investment. Borrowing cost is expected to remain high and entrenched inflation is also expected to maintain rates high. Credit growth to small and MSME sector was above average at 30.5% and Govt capital expenditure increased by 63.4% and contributed to growth. High commodity prices has contributed to high Current account deficit. Rupee can come under pressure, if CAD surges. Gross tax revenue climbed 15.5%, due to buoyancy in direct taxes and GST. Banks have better and cleaner balance sheets. Food grains production hit 315.7 mn tonnes. Institutional credit to agri sector is 18.6 lac Cr. Services sector is expected to grow by 8.4% in 23-24. India is the largest recipient of remittances totalling USD 100 bn last year.

IMF expects Indian GDP to grow by 6.8% in this fiscal, but slow down to 6.1% in next fiscal. India and China are expected to contribute to 50% of Global GDP growth.

In Jan, FII’S sold Rs 10350 Cr of Equities t and have bought Rs 2093 Cr of debt . In last Calendar Year, FII’S sold close to Rs 1.06 lac Cr worth of Equities.

Focus shifts to RBI meeting and decision on Feb 8 th. RBI is expected to hike rate by 25 bps.

USDINR’s supports are at 81.75/81.68/81.42.  200 day average is at 80. Expect Rupee to trade in the 81-82.75.

Global developments: Fed, ECB, BOE rate decisions, US ISM, employment data and tech companies earnings dominated market headlines.

Fed raised rates by 25 bps and signaled its intention to push monetary policy further into restrictive zone. FOMC, raised its benchmark to a range of 4.5% to 4.75% from 4.25% to 4.5% previously. The quarter-point hike marked the second downshift from the Federal Reserve following a slowdown to 50 basis points at the December meeting after four-consecutive 75-basis-point hikes. “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” the Fed said in a statement. With Core PCE softening to 4.4%, investors would be anticipating rate hike pause. Fed Chairman acknowledged disinflation process in Core Goods sector, but said that it is yet to be evident in services sector. He also felt that labor market is tight enough to warrant further monetary restrictive policy.

US manufacturing data showed weakness as the momentum from slowing consumer goods demand continues to feed through to producers. The combination of changing preferences and higher financing costs have weighed on new orders as they have now contracted in six of the past seven months. However, ISM(services) data showed strength with index climbing to 55.2.

US added 517,000 new jobs to the economy in January. Expectations was for only for an additional 185,000 jobs to have been added. In addition, December’s print was revised to 260,000 from 223,000 and the Unemployment Rate dropped to 3.4%, the lowest since 1969! . Average hourly earnings moderated to 0.3% m/m.

ECB hiked rates by 50 bps and committed to another 50 bps hike in March. BOE hiked rates by 50 bps, but was cautious in its statement acknowledging that inflation is softening.

ECB said that interest rates would be determined on a meeting-by-meeting basis moving forward.  However, the statement also said that rates still have to rise significantly higher. In her press conference, ECB President noted that “We haven’t reached a peak in rates, we have ground to cover” and “We know we are not done yet.”  Although the ECB sounded the most hawkish of the three major central banks in action, Euro declined.

US tech companies earnings were mixed. While Meta rallied on stock buy back and better results. Google, Amazon and Apple disappointed. However, US tech index and S&P climbed.

Events to focus: RBI meeting.

Currency technical levels: USDINR: 81.76/81.68/81.42 (Supports), 82.40/82.75 (resistance), EURINR: 90.45(Resistance), 87.45 (Support), GBPINR:  98(Support)/ 102.85 (Resistance). JPYINR: 64.50 (resistance) /62/60.50 (support).

Hedging advise: USDINR Exports can be hedged on rally to 82.40/82.75. EUR and GBP exports can be covered.

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