WEEKLY SYNOPSIS: 31/03/2023

Currency Map:

Brent Crude closed at USD 80.20 VS prior Feb close of USD 83. Gold closed at USD 1986 . Nifty closed at 17359 vs Feb close of 17303. 10 Year G-SEC Yield closed at 7.31%.

Major developments: USDINR traded in the 81.62-82.80 range in March and closed at 82.19 gain of 48 ps for Rupee as against Feb close of 82.67. EUR climbed 2.36% m/m and GBP climbed 2.27% m/m against Rupee. Indian benchmark Equity index climbed 0.32% m/m. 10 Year G-SEC Yield closed at 7.31%. 1-year fwd premia is at 2.35% p.a. FX reserves rose by USD 5.9 bn to USD 578.78 bn as on March 24 th. FX reserves declined by USD 28 bn as compared to March end 2022. In March, FII’S  have bought Rs 11742 Cr of Equities and have bought Rs 1417 Cr of debt . In 2022-23 fiscal year, FII’S have net sold Rs 27593 Cr of Equities and have net bought Rs 838 Cr of debt.

Rupee declined 8.45% in fiscal year 2022-23. In March 2022, it closed at 75.78.Rupee traded in the 75.30-83.30 range in 22-23.Rupee’s trading range is increasing compressed. Since Oct, Rupee has remained in the 81-83 range. In last few weeks, it is trading between 81.60-82.80 range. RBI seems to be on both sides. USDINR is expected to remain in the 81-83 zone. Markets are mired in confusion as Global banking crisis dominate market headlines.

Outlook for Rupee: Rupee declined last year due to US Monetary policy. With rate hikes likely to peak shortly, pressure on Rupee is likely to abate. Indian CAD has also narrowed to 2.2% of GDP in Q3. If US rates stabilize or decline, inflows into Indian Equities is likely to accelerate. This should help Rupee to gain to 78-79 levels.

Hedging advise: Exports be hedged for a longer duration on spike to 82.70 levels and imports be hedged for a shorter duration of 1 month.

Global developments: EUR and GBP climbed 1.3% and 2% q/q respectively. The speed of gain has started to decelerate in last few weeks of the quarter. Gold shined as risk aversion drove flows into the yellow metal. It was a quiet end to a turbulent quarter. Indian and US Equities rose. US S&P climbed 2.5% and US Yields stabilized with 10 year yield at 3.47% and 2 year at 4.03%. Euro’s rally fizzled at around 1.0930. Banking stress, hawkish comments by Fed members and relatively strong economic data were the highlights of last quarter. US Core PCE data showed signs of deceleration. FOMC voting members noted the interest rate path will depend on incoming data and highlighted the uncertainty surrounding the effects of regional bank stress on credit availability.

Fed raised rates by 25 bps in March to a zone of 4.75% to 5% and indicated one more rate hike and dismissed chances of rate cut later this year. ECB raised rates by 50 bps.

Failure of regional banks in US, take over of Credit Suisse by UBS, and pressure on Deutsche bank dominated last month developments.

US services and employment data continues to remain strong with PCE inflation still remaining above Fed’s comfort levels. Housing data is still strong. Manufacturing data is in contraction mode. EU and UK service sectors are also performing well and could prevent the economy from entering recession mode.

Currency technical levels: USDINR: 82.08/81.62 (Supports), 82.80 (resistance), EURINR:90.45(Resistance), 86.25 (Support), GBPINR:  96.50(Support)/101.95(Resistance). JPYINR: 64 (resistance) /59.50 (support).

Hedging advise: USDINR exports can be hedged closer to 82.70. EUR and GBP exports can be covered on rally to 89.50 and 101.50+ respectively.

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