WEEKLY SYNOPSIS: 07/05/2021

Currency Map:

Brent Crude closed at USD 68.60 VS prior week close of USD 66.10. Gold closed at USD 1832.Nifty closed at 14823 vs prior week close of 14631. 10 Year G-SEC Yield closed at 5.98%.

Major developments: USDINR traded in the 73.50-74.33 range and closed at 73.51 as against prior week close of 74.07. Rupee gained 0.75% w/w. EUR declined 0.91% and GBP declined 0.57% w/w against Rupee. Indian benchmark Equity index climbed 1.31% w/w. 10 Year G-SEC Yield closed at 5.98%. In May till date, FII’S have net sold Rs 5935 cr in Equity segment and have net bought Rs 67 cr of debt. In this financial year, FII’S have net bought Rs 3580 Cr worth of Indian Equities and have sold Rs 1034 Cr worth of Indian debt. In 2020-21 financial Year, FII’S nett bought Rs 2,74,203 Cr of Equities and have sold Rs  42820 Cr in debt.

Rupee gained unexpectedly due to IPO related inflows. USD’S weakness against majors also contributed to Rupee gain. Rupee has recovered close to Rs 1.80 since it hit 75.33 on 22 nd April. USDINR fwd premia cooled off to 4.83% for 1 year after steep climb to 5.35%. Nostro account sales and roll over of positions to fwd contributed to climb in fwd premia for 3 days. Indian Equity indices shrugged off negative news and focussed on corporate earnings.

 The week focus was on Corona, lock downs and unscheduled RBI announcements. More and more states announced full lock downs with industry and trade bodies also requesting Govt’s to impose strict shutdowns. To help SME’S and health care industry, RBI announced new set of measures.Individuals and SME borrowers up to Rs 25 Cr can avail restructuring of loans, if not availed earlier. This will be in effect till Sept 21. RBI also announced Rs 35000 Cr additional G-SEC buying. A new 3 year term loan financing facility of Rs 50000 Cr will be available for healthcare sector. Small financing banks lending to micro finance institutions will be considered as priority sector lending.                                           

A special three-year long-term repo operations (SLTRO) of Rs 10,000 crore at repo rate for the SFBs, to be deployed for fresh lending of up to Rs 10 lakh per borrower. 

RBI Governor added that there is no change in growth forecast as of now. He also said that good monsoon should cap inflationary pressures.

On data front, Indian exports stood at USD 30.1 bn in April. Imports rose to USD 45.45 bn. Trade deficit is at USD 14.35 bn. Focus is now on US employment data. Indian PMI(mfrg) climbed to 55.5 in April vs consensus of 51.6. Global PMI data were also robust. Indian PMI(services) eased to 54 in April.

Global developments: USD fell on Friday after making gains till last Thursday. USD fell as US employment data missed expectation by a huge margin. US added only 266k as against consensus of 1 mn jobs. Unemployment rate climbed to 6.1%. Total non-farm employment was still down -8.2m, or -5.4%, compared to pre-pandemic level in February 2020. This data may strengthen accommodative monetary view till end 2022.

BoE kept monetary policy unchanged as widely expected. Bank rate is held at 0.10% on unanimous vote. Asset purchase target was kept at GBP 895B in total. The central bank said economic activity is expected to “rise sharply” in Q2 and GDP would recovery to pre-Covid level “over the remainder of this year”, in absence of most restrictions.

Currency range forecast: USDINR:73.45(support)-74.25(Resistance), EURINR: 88.75(support), 90.75 (Resistance), GBPINR: 102(support), 103.75- Resistance, JPYINR: 67-68.50.                         

Suggestion: Cover USD import payables. USD receivables can be hedged on rally. EURINR payables can be hedged now. GBPINR receivables hedging can be done at around 105.

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