Currency Map:

Currency Pairs  2021 CLOSE 2020 CLOSE % change( M/M)
USD/INR 74.30 73.08 1,66
EUR/INR 84.05 89.20 -5.77
GBP/INR 100.30 99.86 0.34
JPY/INR 64.54/100 YEN 70.75/100 YEN -8.8


WT1 Crude: USD 76.50 vs 48.50 in 2020, Brent Crude at 79.30 vs 51.70 in 2020.

Nifty: 17364, UP 23% Y/Y. Gold closed at USD 1819.

Indian 10 Year G-SEC yield closed at 6.47% .

Rupee traded in the 72.30-76.30 range in 2021. The pair closed at 74.30, registering a decline of 1.66% for Rupee on Y/Y. Rupee’s average monthly close for 2021 is 73.89 as against 74.01 in 2020. EURINR closed at 84.05, decline of 5.8% y/y for Euro, and GBP rose 0.34 % y/y against Rupee. Yen declined 8.8% y/y against Rupee. USDINR fwd premia climbed with 1 year premia climbing to 4.60% annualised. Indian 10 Year G-SEC yields rallied to 6.47%  FX reserves climbed to USD 645 bn.

2021 started with expectation of end to Corona. However, as we wind down this year the risk to public health remains the same. However, vaccination and response to new variants have improved, particularly after the 2 nd wave in April/Mat triggered by delta variant. Unlike 2020, economy has withstood the shock of second wave and there is optimism that the country will tide over new variant waves with little shock to economic growth. Our vaccination efforts and new therapies to manage covid should give us the comfort. It is laudable that the country has vaccinated more than 90% with single dose and 65% with second dose.

Indian Stock indices and Rupee movement suggests the inherent confidence of both domestic and Global investors. India is poised to grow at 9.5% this fiscal and manage 8% in 2022. This will be the best in Global scenario. Indian stock indices climbed 23% y/y and Rupee’s decline was well managed. These were backed by Govt’s policy reforms, RBI’S infusion of liquidity and accommodative monetary stance. Govt’s PLI schemes, loan guarantees to bank for lending to SME’S and public spending have cushioned the negative impact of Corona. Exports have climbed and is on track to achieve USD 400 bn in this fiscal. As normalcy returns, trade deficit have also expanded. GST collections have topped 1.32 lac Cr in Nov. Govt was successful in selling off Air India to Tata Group.

Inflation, supply chain issues and private sector investment have remained major concerns. Soaring Crude prices and localized lock downs have resulted in higher inflation.

2021 also witnessed flood of IPO’S. IPO’S mobilized Rs 1.3 lac Cr in this year This is apprx USD 17 bn. Global IPO’S was estimated at USD 450 bn. Many start ups listed their shares and there were many issues of more than Rs 5000 Cr. The coming year will witness more issues than 2021. LIC, NSE, SNAP DEAL, Go Airlines, Adani Wilmar and BPCL disinvestment are some of the major offerings. It is expected to raise Rs 2 lac Cr.

RBI’S FX mgt has to be seen from this angle of absorbing overseas funds without tipping the liquidity balance. FX reserves is bound to increase in coming year.

Indian top companies are also expected to perform well. EPS for Nifty companies is expected to climb by 16% in coming fiscal.

Along with economic progress, RBI will be under pressure to withdraw excess liquidity and possibly raise rates in second half of this year. The trend has already been set by BOE with 15 bps increase in rates. Fed is to follow with rate hikes in 2022.

RBI Governor had indicated once that RBI is both buying and selling USD to maintain reasonable FX parity with acceptable volatility. Rupee has been prone to wild swings earlier due to higher CAD and fiscal deficit. With CAD reasonably controlled and high FX reserves, RBI is in a better position to manage Rupee fall, should it happen due to US rate increases.

Oil prices have rallied by over 54% y/y. OPEC decided to cut production in early 2021 to stabilize prices. With economies recovering and demand going up, Oil prices have again climbed steeply. US, China, India and Japan decided to release Oil from strategic reserves to cushion the price rise.

Overall, Indian economy is getting back to pre pandemic levels with export boost and higher inflation. Indian stock indices have outperformed Asian peers and is likely to enter into top 5 markets by market capitalization.

USDINR is expected to trade in the 73.50-76.50/77.50 levels, with an average level of 75 in the coming calendar Year. EURINR is expected to fall to 82.50/81.50 levels and the average level is expected to be below 85 as against 87.45 in 2021. GBPINR is expected to trade between 99 and 104 with avg level of 102.

Global developments: Corona, inflation, supply chain issues and central banks shift in monetary policy dominated 2021 developments. Despite the frequent disruptions caused by the infection, many major economies have recovered significantly. US growth is expected to be 5.6% this year and possibly slow down to 3.5% in 2022. PMI surveys have been robust. Income growth and spending have held up, thanks to large fiscal outlay and direct income transfer to households. US Household savings have increased and it is estimated that US consumers are sitting on more than USD 1 trn of savings. This should support the economy. Inflation increase has been combated by income growth and falling unemployment. US employment is close to pre pandemic levels with unemployment rate falling to 4.3%. PCE Inflation is at multi decade highs of 5.4%. In the initial period, Fed considered inflation as transitory. It has now recognised that inflation has to be combated and has announced USD 30 bn reduction in QE per month. It has also indicated that it may raise rates 3 times next year. BOE has already moved with 15 bps rate hike. Only ECB has steadfastly refused to recognise the impact of higher inflation. The USD-EUR interest differential is expected to increase and hence support USD.

US Equity markets have remained upbeat shrugging off Omicron fears, due to strong retail sales data and robust ISM surveys.

IMF lowered 2021 growth forecast slightly by -0.1% to 5.9% , reflecting “a downgrade for advanced economies—in part due to supply disruptions—and for low-income developing countries, largely due to worsening pandemic dynamics.” Indian growth is expected to be 9.5%.                                    

EUR/USD which is now trading at 1.13 levels, could weaken further to below 1.10 levels. The pair was at 1.22 in 2020 end. Average level was at 1.1750 in 2021. EUR/USD could trade at an average level of 1.13 in 2022.

Currency outlook: Expect USDINR to trade in the 73.50-77.50 range in 2022.

EUR/INR is expected to trade between 81-86. GBPINR is expected to trade in the 99-104 levels.  JPYINR could consolidate in the 62-68 range.

Outlook for NOV 2021:

Currency pairs 85% confidence range for NOV Most likely range
USD/INR 73.50-77.50 74-76.50
EUR/INR 80.50-86.50 82-86
GBP/INR 99-105 100-103
JPY/INR (100 Yen) 62-68 62-68

Suggestion: USD imports be hedged at around 74 for 3 months and hedge as and when fwds is below 75 during 2022. 

Exports can be hedged at 75.50/76+. EURINR exports can be hedged closer to 85.50 and payables can be hedged as and 
when fwds is below 84. GBP exports can be hedged closer to 103.50+ levels.  

Please call us for clarifications./Regards/ (Sridhar S R)


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