In the last 1 month India has seen a confirmation that
political certainty is going to stay for at least another 5 years. The dollar
Index has lost 2% from 98 to 96 levels. All emerging marker currencies have
appreciated around 3% in the same period while Rupee has been in the same range
with a lagging appreciation of 1% compared from 70.50 levels. In the same
period Oil has moved lower from 73 levels to 65 levels currently. Nifty has moved higher from 11,200 to 11,700
levels. India bond yields have fallen with a dovish RBI, political certainty
and dovish global central banks.
All the above factors should have resulted in another 1-2%
rupee appreciation but the same has not happened because anecdotally RBI has
been buying USDINR aggressively in the same period. The reason for the
increased intervention could be to keep USDINR propped up ahead of the Jalan
committee decision which can give the government a fiscal relief (either on the
balance sheet or P&L) of around Rs. 3 lakh cr (estmates only). The Jalan committee
decision is due by latest July 1st
week. I would expect that once this fiscal bonus is delivered to the government
Rupee should reflect all the above factors and register its overdue gains. I
would expect that RBI’s capital transfer to the government will not have a
negative impact on India country rating given that market has been informed of
the same for almost 6 months now and the concerns around the same has been
absorbed in price. For the next month I would expect USDINR to move lower with
70 as a good resistance and potential to appreciate to 68.30-68.80 levels.
Resignation of Mr. Viral Acharya and higher Brent prices could
bring in some more bids than offers today. For the day 69.57, Range 69.76-69.40.
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