According to the revised GDP numbers India grew by 8.2% in the year of demonetization (FY17) better than previously reported 7.1%, and accelerated from FY16’s 8% (revised). This indicates that today’s budgets will also have very good numbers in spite of whatever sops are given to whosoever.
The changed interest rate outlook in the US indicates growth concerns and perhaps puts the dollar on a moderate weakness path for 2019. With growth outlook becoming softer, the twin deficits of the US (fiscal and current) should come into focus.
Today’s’ budget has been the main reason why participants have not sold USDINR on the above development. Once the budget is digested in price then given dollar weakness, equity risk sentiments, stable oil prices and lower domestic inflation, the short term outlook should become INR bullish. Commentary suggests that if FY20 fiscal deficit is maintained within 3.5% then it should not be a shock to the markets, which should easily be achieved given the revised GDP numbers. Given the government’s commitment to keep numbers strong (like the GDP numbers above), the budget should not be a negative surprise. Therefore on the back of an outlook of gradual dollar weakness, I would want to sell USDINR between 71.30-71.45. CMP 71.15, Range 71.30 (71.45) – 70.80.
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