Currency Map: WEEKLY SYNOPSIS: 31/03/2022

Brent Crude closed at USD 109 VS prior March 2021 close of USD 63. Gold closed at USD 1937 vs USD 1707 in March 2021.Nifty closed at 17464 vs prior year close of 14690. 10 Year G-SEC Yield closed at 6.84%.

Major developments: USDINR traded in the 72.32-76.98 range in 2021-22 fiscal year and closed at 75.78 as against prior year close of 73.11. Rupee declined 3.65% y/y. EUR declined 2.10% y/y and GBP declined 1.08% y/y against Rupee. Indian benchmark Equity index climbed 19% y/y. 10 Year G-SEC Yield closed at 6.84%. 1 year fwd premia is at 3.75% p.a.

The financial Year started with second wave of Covid and economy was partially affected by lock downs in April/May of 2021. In Jan, Omicron forced localised lock downs, though its impact was limited. Even as the economy was getting out of pandemic, Russian-Ukraine war has hit hard with economic repercussions due to Oil price rise.

Indian GDP is expected to end the year with growth rate between 8.2%-8.5%. This is against earlier estimate of 9.2%.  Next Year growth has been revised down due to inflationary impact. GDP growth is expected to be between 7.8 to 8.2% in 2022-23. Inflation is now persistently above 6% and may remain well above the band of 4-6% and force RBI to hike rates in the second half of this year.

Supply chain issues, booming commodity prices, travel restrictions and unwinding of monetary stimulus were the key events that dominated 2021-22. Indian FX reserves declined from USD 650 bn to USD 620 bn as on March 18 th as RBI sold USD to stem Rupee fall.

In 2021-22, FII’S have net sold Rs 128897 cr in Equity segment and have net bought Rs 4805 cr of 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. 

Indian exports crossed USD 400 bn, the target sent by commerce Ministry for this year. This is 21% higher than pre pandemic levels of USD 331 bn. Imports also surged to USD 550 bn in period till Feb this fiscal. Trade deficit widened to USD 176 bn in Apr 2021-Feb 2022.

Fwd premia continued to decline from last year peak of 4.8% to around 3.75% due to shrinking rate differential between USD and INR.

GST collections have remained buoyant with last 2 month collections topping 1.4 lac Cr. IIP growth has declined gradually from April and was up 1.3% in Jan with mfrg growing at around 1.1%.

USDINR is expected to trade in the 74.50-78 range this year. Key supports are at 74.90/74.50 and resistances will emerge in the 77.50-78 zone.

USDINR payables hedging can be considered for 6 months if USDINR declines to 74.50 and receivables can be hedged for 1 year if USDINR spikes to 77.

Global developments: Global economy is now facing the heat of inflation induced by Covid, Russian invasion and monetary stimulus of last 2 years. Major central banks have now shifted to hawkish stance after failing to acknowledge inflationary threat. It was initially dismissed as transitory. Output of major economies are above pre pandemic levels. Employment is just short of pre pandemic levels. Higher wage growth, increasing housing prices and surging commodity prices have forced Fed and BOE to announce removal of QE. Fed is expected to keep raising rates in its upcoming meetings and US D rates may become 2% by year end. US and EU mfrg and services data are in expansion mode with higher unit labor costs. US spending and retail sales data continue to be robust.

On the market side, US S&P surged 14% y/y. House prices have climbed 19% y/y. Gold price has climbed 13.5% y/y. Brent Crude has surged 73%. OPEC continues to be stubborn on increasing production. Global supply could fall due to Russian sanctions. Russia produces 10% of Global Oil supply.

USD index has climbed 5.09%. EURUSD has declined 5.65% y/y. Increasing USD interest rates and growing growth differential between USD and EU, should support USD.

End of Russian conflict and withdrawal of sanctions on Russia could have positive impact on Global economy. If that happens, Oil could decline, Rupee could breach 74.50 on the downside, Gold could fall and Equities could climb. Interest rate increases may moderate as inflation could become more manageable.

On the positive side, control of Covid and end to Ukraine conflict along with sanctions withdrawal on Russia could be the launching pad for riskier assets climb to new highs.

Currency range : USDINR: 74.50/72.30( support), 77/78.50 (resistance), EURINR:82.20 (support)/ 86.40 (Resistance), GBP/INR: 98-102, JPY/INR:60-64.

Suggestions: USD exports can be covered on rally to 77. Payables can be covered at 74.50. EURINR payables can be covered at 83.30/82.20. GBPINR exports can be covered at 101.50+.

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