Currency Map:

USD/INR 73.13 73.14 0.00
EUR/INR 86.28 85.85 0.50
GBP/INR 94.60 94.80 -0.20
JPY/INR 69.15 69.57 -0.60

Brent Crude closed at USD 42.50VS prior week close of USD 38.81. Gold closed at USD 1936.

Nifty closed at 11914 vs prior week close of 11416.

10 Year G-SEC Yield closed at 5.94%.

Major developments: USDINR traded in the 73.56-73.03 range and closed at 73.13 as against prior week close of 73.14, almost unchanged for Rupee w/w. EUR climbed 0.50% and GBP declined 0.20% against Rupee. Indian benchmark Equity indices climbed 4.38% w/w basis. 10 Year G-SEC Yield closed at 5.94%.

Indian macro fundamentals continued to improve with mfrg index surging and auto sales reviving back to pre pandemic levels. Agri sector is resilient and IT companies have reported increase in profits. Freight collections are higher and trade deficit has shrunk.

RBI maintained status quo on rates and stance. RBI Governor said that MPC has decided to see through the inflation as it is likely to be transient.  GDP is expected to contract by -9.5% for this year. GDP is expected to be in positive zone in Q4. RBI Governor said that consumption and exports are picking up and it is not imprudent to dream. He added that the economy is in a decisive stage.

RBI has decided to do Weekly OMO’S of Rs 20,000 Cr which could be infused into corporate debentures. RBI is also expected to buystate govt securities as part of OMO. For housing sector, risk weigthage of loans has been reduced to loan to value ratio, which could bring down costs of housing loans for high loan values. Banks need not account MTM of bond fluctuations till 2022. Banks exposure to individual retail loans has been enhanced to Rs 7.5 cr.

With inflation expected to moderate in Q4, RBI could cut rates in Feb by 25 bps.

Indian trade deficit was reported at USD 2.91 bn in Sept vs USD 6.8 bn in Aug. Importscontracted 19.60% in September to $30.31 billion from a year ago while exports rose 5.27% to $27.40 billion.Importsfell by 40.06% to $148.69 billion during April-August while exports contracted 21.43% y/y to USD 125.06 bn.

FII’S nett bought Rs 4284 Cr of Indian Equities in Oct . FII’S nett sold Rs 3135 Cr of Indian debt securities in Sept . In this financial year, FII’S have nett bought Rs 83768 Cr of Equities and have sold Rs  31683 Cr in debt. In FY 19-20, FII’s have sold Rs 10200 Cr of Equities and 47393 cr of debt.

Global developments:USD declined against majors as risk on trades surged. Equity indices recovered, Gold climbed and US treasury yields moved higher. Crude also reversed last week losses. Markets were relieved to see US President back in action. US President cancelled stimulus talks with democrats and later added that he is still willing to negotiate.US election is the major focus with Mr Biden still in lead. If elected, Mr Biden is expected to expand stimulus program. Fed Chief reiterated the need for fiscal support.

Fed minutes noted that “many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated.”

ECB attributed the recent appreciation in Euro exchange to two main drivers. The first and most important one was “substantial improvement in global risk sentiment” and “reversal of previous safe-have flows” into the US. The second was “likely related to monetary policies implemented in the United States and the euro area”. Looking ahead “market positioning remained tilted towards further euro appreciation”.Members considered that a further appreciation of Euro “constituted a risk to both growth and inflation”.

ECB President Christine Lagarde said Europe’s recovery is ” incomplete, uncertain, uneven.”

Important developments in coming week: US CPI, retail sales, Indian IIP and CPI

Currency range forecast: USDINR:72.70(support)-73.50/74(Resistance), EURINR: 85.50(support), GBPINR: 93.25(support), JPYINR: 68-71.

Suggestion: Cover USD import payables on decline to 72.70. USD receivables can be hedged at 73.80-74.40+.EURINR payables can be hedged at 85.75-86. GBPINR receivables hedging can be done on rally to 97-99 levels.

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