Currency Map:

USD/INR 70.74 71.08 -0.47
EUR/INR 80.55 81.23 -0.83
GBP/INR 93.75 93.02 0.78
JPY/INR 63.50/100 YEN 65.28/100 YEN -2.72


WT1 Crude: USD 57.22 vs 53.80 in Dec end.

Nifty: 10792 vs 10830 in Dec end.

Rupee gained 0.47% to close Feb at 70.74 vs 71.08 on Jan end. Rupee traded in the 70.40-71.84 range, impacted by host of economic and geo political developments. Euro/INR tracked USD/INR movement and ended 0.83% lower. GBP was volatile and rallied past 94 on Brexit developments. Yen declined against USD and contributed to the Rupee gains against Yen.

Equity indices wobbled, but ended almost flat as compared to Janclose.WTI Crude climbed further last month, prompting US President to call on OPEC to stabilize prices. OPEC maintained that supply cut of 1.2 mbpdwill remain.

FII’S bought  Rs 15328 Cr of Indian Equities in Feb. FII’S have nett bought Rs 14823 Cr of Indian Equities in this calendar Year till date. FII’S sold Rs 9290 Cr of Indian debt securities in Feb. FII’S have sold Rs 11891 Cr of Indian debt in this calendar year till date.

Feb month was dominated by budget, RBI rate cut, RBI decision on PSU banks, geo political developments, GDP data and positive developments on US-China trade talks.

RBI cut rates by 25 bps and minutes indicated that more rate cuts could follow due to high real rates, declining inflationary trend and slowdown in growth. Indian inflation declined to 2.05% in Jan. The main concern is the GDP slowdown in Q3.

Indian GDP growth declined to 6.6% in Q3. In first half of 2018-2019, GDP had grown by 7.5%. CSO estimates growth at 7.2% for this fiscal and 7.4% for next year. Farm sector grew by 2.7%, consumer spending declined to 8.4%.                                             


Core sector growth slowed to 1.8% in Jan. Crude, refinery and power generation contracted by 4.3%, 2.6% and 0.4% respectively.

RBI has allowed 3 more banks to move out of PCA framework due to capital infusion. Corporation bank, Allahabad and Dhanalaxmi banks are the recent additions to earlier banks. With this 6 banks have exited PCA framework.

Indian trade deficit fell to USD 14.73 bn in Jan. Exports was up 3.74% to USD 26.36 bn, while imports was stagnant at USD 41.09 bn.

Equity indices and Rupee were also impacted by India’s strike on Pakistan based terror camps. Rupee spiked to 71.48 on Wednesday and then cooled to 70.74 on Friday on hopes of de-escalation of tensions. Focus now shifts to Feb inflation data and election dates.

Indian 10 Year G-SEC yields traded in the 7.28-7.48 range. Fiscal deficit concerns remain despite optimistic projections by Govt. Fiscal deficit is the single major worry on the macroeconomic picture along with decline in farm growth.

Global data indicates slow down in Q1 Global growth. While US grew by 2.9% in 2018, it is to be noted that growth slowed down in Q 4 to 2.6%. Decline in personal spending and Govt shutdown are likely to drag Q1 growth. This will reinforce Fed’s flexible and patient stance on balance sheet shrinking and rates. EU slow down is entrenched with German Q4 GDP at 0%. France, Italy and Spain are all witnessing slow down. Trade issues and Brexit have contributed to EU and UK’S growth worries.

Amidst Global economic uncertainty, there was some positive news on US-China trade talks. US has extended March 1 st tariff deadline and there are hopes of a robust trade deal to end the uncertainty sooner than later.

Crude price appears to be at an inflection point as the OPEC + production cuts appear to have run their course while US production is expected to increase in the coming months. Softer economic data from the largest economy in the world also put a damper on demand. US President also called on OPEC to relax cuts.


Currency outlook: Fed’s move and ECB’S growth outlook should help EM Currencies and enable more flows into Indian markets. This should balance trade deficit, even if Crude climbs further. In the last 2 months, Crude has edged higher and has rallied over USD 10/bbl. Oil prices and election uncertainty are the counterbalancing factors to Fed and ECB’S dovish stance. Hence, once the election uncertainty is over, Rupee has higher probability of gains to 68/67 levels. For the next few months, expect Rupee consolidation in the 70.50-71.50 Zone. Since EUR/USD is not exhibiting any decisive trend, expect EUR/INR to track USD/INR and trade in the 80-81.50 zone. GBP/INR movement will be impacted by Brexit developments.

Over the medium term, Rupee positives are 1)Dovish Fed, 2) Weak EU growth, 3)Positive resolution to US – China trade talks. 4) Investment flows. Rupee negatives are 1) Crude rally, 2) Election result uncertainty.

Considering the last year Rupee decline and the overall spot movement not matching the fwd curve over 3 year period, it is a worthwhile proposition to sell USD for 2 years and sell  USD for 1 year on rally.                                                                         

Since Jan 2018 low was 63.25, we do not expect Rupee to trade above 72-73 levels by Jan 2021. Hence, fwd selling for Jan 2021 at 77 should yield rich dividends.

EURINR exports can also be fwd hedged as EUR/USD is likely to consolidate at an average level of 1.15 this Year due to status quo on interest rate differential. Hence, short term Rupee weakness could help EURINR to climb to 82.50-84 levels and that would make a strong and confident case for 2 Year export hedging.

GBPINR has rallied as Pound seems to be benefitting from Brexit uncertainty. The pair could trade in the 91.50-95 range in coming weeks.

JPYINR could consolidate in the 64.50-66.50 range.

Indian developments:

1) Indian Q3 GDP growth declines to 6.6%.

2) Jan inflation falls to 2.05%.                                                                     

Global developments:

1) Fed signals that liquidity withdrawal will end.

2) ECB signals downside risks to growth.

3) Brexit uncertainty continues.

4) Crude climbs higher.

Upcoming events:

1) Indian IIP and CPI data and trade deficit data.

2) UK Vote on Brexit deal

3)US-China trade summit.

Outlook for March: USDINR has support at 70.50 and resistance could emerge at 71.50 on rally. EURINR rally is due to USDINR rise. Expect 80.50-81.50 range. GBPINR is expected to trade in the 91.50-95.50 range. JPYINR is expected to trade in the 61.50-64.50 zone.

Currency pairs 85% confidence range for Sept Most likely range
USD/INR 70.50-72 70.40-71.50
EUR/INR 80-82.50 80-81.50
GBP/INR 91-95.50 92.50-95.50
JPY/INR (100 Yen) 61.50-65 61.50-64.50

Suggestion: USD imports be hedgedon decline to 70.50, EURINR imports be hedged on decline to 80.50/80levels. USD Exports be hedged incrementally on rally to 71.40. EURINR exports be hedged on rally to 81+.

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