Currency Map:
| Currency Pairs | WEEKLY CLOSE | PRIOR WEEK CLOSE | % change |
| USD/INR | 70.94 | 70.92 | 0.00 |
| EUR/INR | 78.31 | 78.72 | -0.52 |
| GBP/INR | 88.76 | 88.31 | 0.51 |
| JPY/INR | 65.94 | 65.61 | 0.50 |
Brent Crude closed at USD 64.65 VS prior week close of USD 60.15.
Nifty closed at 11274 vs prior week close of 11075.
10 Year G-SEC Yield closed at 6.79.
Major developments: USDINR closed flat w/w, but the close belies the volatility in the pair. USDINR spiked to 71.98 earlier in the week following spike in Crude prices. Attack on Saudi Aramco triggered steep rally in Brent Crude prices. However, on assurance from Saudi Arabia that production will be normal before month end, Crude prices retraced and helped Rupee to recover. On Friday, Rupee gained to 70.67 following FM’S announcement of steep cut in corporate tax. EURINR declined, while GBPINR closed flat w/w.
FM announced steep cut in Corporate tax to 22%. Corporates can chose to pay 22% without any expemption or 25.17% . MAT has been cut to 15% from 18%. New manufacturing companies registered after Oct 1, 2019 will pay only 15% tax. This is the lowest in South East Asia.
Govt hopes that this will lure companies to invest in India and make India as a manufacturing base. CSR scope has been extended to include contribution to IIT’S and other Govt funded research institutions.
Indian Equity markets soared and registered the second major single day gain in 10 Years. Corporate after tax earnings are bound to increase 15%.
GST council reduced GST rate for hotel rates above Rs 7500 to 18%. There was no GST concession for auto sector.
Govt has been periodically announcing various economic measures to boost growth. Corporate tax cut is the biggest of these measures and is likely to benefit all sectors. Transmission of rate cuts, tax cut and timely refund of GST arrears are major measures, besides sector specific announcements. Considering the corporate tax cut, there could be demand for reduction in personal taxes.
FM announced that Govt will forgo Rs 1.45 lac Cr every year. Unless this is met by tax buoyancy and PSU strategic sales, fiscal deficit could slip to 4%. This could be credit negative in the short term. G-SEC yields spurted to 6.8%.
USDINR movement will depend on inflows, Crude oil movement, geo political developments and US-China trade issues. While fiscal deficit is a strong negative for Rupee, shorter term moves will depend on inflows into asset markets. Equity inflows have reversed since July and there is hope that this will return back with withdrawal of FPI surcharge and higher after tax corporate earnings due to tax cuts.
FII’S have nett sold Rs 6152 Cr of Indian Equities in Sep . FII’S have nett bought Rs 43221 Cr of Indian Equities in this calendar Year till date. FII’S have nett bought Rs 792 Cr of Indian debt securities in Sep. FII’S have nett bought Rs 29394 Cr of Indian debt in this calendar year till date.
Global developments:
-Global developments were dominated by Fed decision and Crude price movement.
Fed on a 7-3 vote, lowered the Fed funds target rate on Wednesday to a range of 1.75% to 2.00% “in light of the implications of global developments for the economic outlook.”However, Fed Chairman Jerome Powell described U.S. prospects as “favourable” and the rate move as “insurance.” Projections published by the Fed showed policymakers, at the median, expected rates to stay within the new range through 2020, while futures markets have priced in at least another cut.
Fed has emphasised that its decision will be data dependent. Lower growth in 2020 and trade uncertainity will push Fed to offer 2 more rate cuts.
BoE kept bank rate unchanged at 0.75% and held asset purchase target at GBP 435B as widely expected. Both decisions were made by unanimous votes.The central bank noted that since last meeting US-China trade war has “intensified” and global growth outlook has “weakened”.
Important developments in coming week: US spending data, Brexit talks
Currency range forecast for coming week:
USDINR: 70.45-71.50, EURINR: 78.10-79.10, GBPINR: 87.50-89.50, JPYINR: 65-67.75.
Suggestion: Cover 1-2 month USD import payables on dips to 70.45. USD exports may be hedged on rally to 71.45/71.75. EURINR payables can be hedged at 78.10. EURINR receivables can be hedged closer to 79.10. GBPINR receivables can be hedged at 89+.
