WEEKLY SYNOPSIS: 

Currency Map:

Brent Crude closed at USD 62.66 VS the prior week close of USD 59.76. Gold closed at USD 1824.Nifty closed at 15163 vs prior week close of 14924. 10 Year G-SEC Yield closed at 5.99%.

Major developments: USDINR traded in the 72.65-72.97 range and closed at 72.75 as against the prior week close of 72.92, registering a gain of 0.23 % w/w. EUR and GBP climbed against Rupee. Indian benchmark Equity index climbed 1.6% w/w. 10 Year G-SEC Yield closed at 5.99%.

Rupee gained to 72.65 last week, as flows continued. Fwd premia surged higher. 1 Year fwd premia climbed to 5.20% p.a. FII flows intensified after the budget. Rupee gains is stemmed by USD buying by PSU banks. Indian FX reserves declined by USD 6 bn to USD 584 bn as on Feb 5 th. The decline is attributed to the valuation of Foreign currency assets.

FII’S nett bought Rs 24936 Cr of Indian Equities in Feb . FII’S nett sold Rs 624 Cr of Indian debt securities in Jan . In this financial year, FII’S have nett bought Rs 255583 Cr of Equities and have sold Rs  25886 Cr in debt. In FY 19-20, FII’s sold Rs 10200 Cr of Equities and 47393 cr of debt.

On the data front, retail inflation declined to 4.06% in Jan as against 4.59% in Dec. Food inflation fell to 20 month low of 1.89%. According to RBI: The outlook for core inflation is likely to be impacted by further easing in supply chains; however, broad-based escalation in cost-push pressures in services and manufacturing prices due to an increase in industrial raw material prices could impart upward pressure,”.

IIP climbed 1% in Dec 2020. Mfrg grew 1.6%, the power sector grew by 5.1%, mining contracted -4.8%. The industrial growth so far in the fiscal year 2020-21 (April-December) has contracted -13.5 percent, compared to a 0.3 percent rise in the corresponding period a year ago, the data showed. Auto sales climbed 11% in Jan.                                     (contd.,)

P 2

USDINR is expected to slide to 72.30 levels as flows remain robust. On Friday, it was trading below 72.60 in overseas NDF markets. Fwd premia continued to remain firm with 1 year at 5.20%. Expect USDINR to trade in 72.40-72.90 range in the coming week.

Global developments: US 10 Year yield spurted higher on expectations of hardening of prices and pickup in economic activity from the second quarter. However, Fed is more concerned about employment than prices and may wait till it secures the labor market. US stimulus package is the focus presently.  If the full $1.9 trillion American Rescue Plan package is passed, real GDP growth could run as high as 6% through 2021, enough to bring the level of GDP back to its pre-crisis trend by the end of the year.

In the latest economic projection, European Commission downgraded the 2021 growth projection of EU to 3.7% (from autumn’s 4.1%) and Eurozone to 3.8% (from 4.2%. But it upgraded 2022 growth projection of EU to 3.9% (from 3.0%) and Eurozone to 3.8% (from 3.0%).

UK GDP grew 1% q/q in Q4.

Currency range forecast: USDINR:72.40(support)-72.90(Resistance), EURINR: 87.10(support), 88.50 (Resistance), GBPINR: 99.50(support)101.20- Resistance, JPYINR: 68.50-70.                         

Suggestion: Cover USD import payables on the decline to 72.40. USD receivables can be hedged at 72.90. EURINR payables can be hedged on the decline to 87.50. GBPINR receivables hedging can be done at around 101.

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