Currency Map:

USD/INR 71.66 71.15 0.71
EUR/INR 79.23 78.82 0.52
GBP/INR 87.54 86.55 1.14
JPY/INR 67.98 66.99 1.47


Brent Crude closed at USD 59.10 VS prior week close of USD 58.70.

Nifty closed at 10829 vs prior week close of 11047.

10 Year G-SEC Yield closed at 6.57.

Major developments: USDINR traded between 71.05 and 72.05. EURINR and GBPINR closed the week with gains.

Equity and FX markets volatility continued. There was a roller coaster ride in USDINR and benchmark indices. Rupee pulled back from 72 handle to close at 71.66. Rupee fall was attributed to decline in Yuan. Chinese Yuan declined to 7.0950 levels and dragged EM currencies lower. Indian FM said that Rupee decline will be helpful for exports. With Crude prices stagnating, there will be less pressure on RBI to reverse underlying trend.

On expected lines, FM announced measures to prop up economic growth. FM announced measures to boost demand and increase credit flows. Auto sector measures include additional 15% depreciation on vechiles, lifting of ban on Govt purchase of new vehicles, clarification on BS 1V vechiles, deferment of higher registration charges till June 2020 and a proposed scrappage policy. Banking measures included upfront infusion of Rs 70,000 Cr capital (which could increase lending up to 4 lac Cr by PSU’S), linking of borrowing rates to repo rate for effective rate transmission, freeing honest credit decision burden of bank officials from vigilance, and co origination of credit decision with NBFC clients. To free IT demands from arbitrariness, FM has announced centralised coding system and time bound settlement of IT demands. To eae MSME burden, Govt has announced that all pending payments will be cleared within 30 days and all payments in future will be cleared within 60 days.                                                                                                   

For Capital markets, FM has announced scrapping of surcharge on capital gains, whicih would benefit both FPI and domestic investors. This is likely to encourage Equity inflows back, as FII’S have pulled out Rs 22000 Cr since July budget.

To boost development, FM has announced that Rs 100 lac Cr infrastructure development will be streamlined and monitored.

Earlier in the week,last RBI minutes was released. It showed that the MPC was concerned about economic slowdown and supported aggressive rate cuts. The committee also noted slow down in service sector.

Markets may remain volatile as it is tossed between positive developments in India and a escalating trade and currency war.

FII’S have nett sold  Rs 10639 Cr of Indian Equities in Aug . FII’S have nett bought Rs 54860 Cr of Indian Equities in this calendar Year till date. FII’S have pulled out Rs 22000 Cr of Indian Equities since budget day. FII’S have nett bought Rs 8240 Cr of Indian debt securities in Aug FII’S have nett bought Rs 27022 Cr of Indian debt in this calendar year till date.

Global developments:

-Global markets were rocked by escalating US-China trade relations. China announced retaliation tariffs on USD 75B US imports. Additional tariffs of 5% or 10% will be imposed on a total of 5078 products lines originating from US. Goods include agricultural products, crude oil, small aircraft and cars.The first batch will take effect on September 1. Others will take effect on December 15.

US President retaliated by imposing further tariff on Chinese imports. Starting on October 1, tariffs on USD 250B in China imports will be raised from current 25% to 30%. The rate of the planned tariffs, to take effect on September 1, on USD 300B of Chinese products, will be raised from 10% to 15%. US President also asked US Companies to start looking for alternatives to China and bring home their manufacturing base or shift elsewhere.

Fed Chairman Jerome Powell noted that the three weeks since July FOMC meeting “have been eventful”. There were new tariffs on Chinese imports, further evidence in global slowdown notably in Germany and China. Also, there were geopolitical events including “growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government.” This statement implies that Fed would further cut rates by 50 bps this year.

Fed minutes of last meeting showed that  policymakers highlighted concerns about slowing global growth and trade tensions as headwinds, but stopped short of suggesting that a series of rate cuts should follow, according to the minutes of the Federal Reserve’s July meeting released Wednesday.

The Fed suggested that the best course of action would be to remain “flexible” and monitor incoming economic data amid uncertainty over when risks weighing on the economy, including the U.S.-China trade war would be resolved.

ECB policy meeting showed that members “broadly supported the reintroduction of an easing bias” to the forward guidance. That came in light of “weakness of the economic outlook and the muted inflation developments”.

-Global manufacturing PMIs have remained weak, and geopolitical risks, such as the no-deal Brexit, have intensified. Consumer sentiment levels in Europe are also low, consistent with levels that have historically preceded a recession.

-Global growth is expected to be only at 2.9% in this fiscal.

-Gold rallied, Crude declined on Friday and stocks gyrated as trade issues boosted safe haven flows.

-US and European yields declined further, flashing signs of deeper economic slow down.

Important developments in coming week: Focus will be on impact of US-China trade and currency war.


Currency range forecast for coming week:

USDINR: 71.10-72.45, EURINR: 78.85-80.30, GBPINR: 85.80-88, JPYINR: 66.60-68.60.

Suggestion: Cover 1-2 month USD import payables on dips to 71.10. USD exports may be hedged on rally to 72.50. EURINR payables can be hedged at 78.80. EURINR receivables can be hedged closer to 80.30. GBPINR receivables can be hedged at 88+.


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