WEEKLY SYNOPSIS: 04/03/2022

Currency Map:

Brent Crude closed at USD 118 VS prior week close of USD 94.50. Gold closed at USD 1974.Nifty closed at 16245 vs prior week close of 16658. 10 Year G-SEC Yield closed at 6.81%.

Major developments: USDINR traded in the 75.29-76.22 range and closed at 76.17 as against prior week close of 75.29. Rupee declined 1.16% w/w. EUR declined 0.50% and GBP climbed 0.54% w/w against Rupee. Indian benchmark Equity index declined 2.47% w/w. 10 Year G-SEC Yield closed at 6.81%. 1 year fwd premia is at 4.08% p.a.

Rupee was jolted by steep rise in Crude Oil price and heavy FII selling. Crude climbed 25% in a single week, stoking fears of big trade deficit. This is compounded by continued FII selling. LIC IPO is also likely to be deferred. RBI tried to smoothen Rupee fall with soft intervention. Rupee path will be determined by Ukraine developments, Crude price and RBI’S intervention. USDINR need to fall back below 75.70 to mean revert below 75 levels.

Q3 GDP climbed 5.4% y/y as against expectation of 6%. In Q2, GDP grew by 8.5%. FY 22 GDP growth has been revised lower to 8.9% as against earlier estimate of 9.2%. Agri sector grew by 2.6%. Mfrg climbed only 0.2% in Q3. Pvt Consumption grew by 7%. Gross fixed capital formation, an indicator of investment activity, grew by just 2 per cent. Government final consumption expenditure provided support by growing at 3.4 per cent. During Q3FY22, mining at 8.8% and public admin, defence and other of 16.8% were recorded the highest growth in the broader sectors. Construction sector contracted -2.8%. Third wave restrictions, supply bottlenecks, semi conductor shortages and Geo political reasons have contributed to lower than expected Q3 GDP growth. 

Indian Feb GST Collection crossed 1.33 lac Cr.

In Mar, FII’S have net sold Rs 10586 cr in Equity segment and have net sold Rs 1728 cr of debt. In this financial year, FII’S have net sold Rs 68477 Cr worth of Indian Equities and have bought Rs 2726 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.

Global developments: Crude Oil climbed 25% w/w, Gold rallied to USD 1975, Equity indices declined steeply and USD gained against European majors. Russian invasion of Ukraine took a heavy toll on riskier assets with Euro and EU markets facing the brunt. OPEC maintained status quo on production, despite call to increase supply. Impact of war would reverberate in various supply chains and lead to supply problems, higher inflation and drag on economic growth.

US employment and ISM (mfrg) data were robust. US non-farm payroll employment rose 678k in February, above expectation of 438k. Employment was still down -2.1m, or -1.4% from its pre-pandemic level in February 2020. Unemployment rate dropped from 4.0% to 3.8%, better than expectation of 3.9%. That’s still above pre-pandemic level of 3.5%. Number of unemployed edged down to 6.3m, above pre-pandemic level of 5.7m. Average hourly earnings was flat mom, well below expectation of 0.6% mom.

On the economic data side, focus will be on ECB meeting and US CPI. Due to impact of Russian war, Fed may slow down the quantity of rate hikes. However, they are on track to hike rates by 25 bps in March and this was confirmed by Fed Chairman in his testimony.

Technically, EURUSD could fall further if there is no abatement to war. Crude, Gold and Euro are now at the mercy of Russian invasion.

Currency range : USDINR: 75.70/75.30( support), 76.35/76.90 (resistance), EURINR: 83.30/82.20 (support)/ 85.20 (Resistance), GBP/INR: 100.50-102.50, JPY/INR:64.50-66.50.

Suggestions: USD exports can be covered. EURINR payables can be covered at 82.20. GBPINR exports can be covered at 101.50+.

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