Reported By:
| Edited By: Arun Khurana |Source: DNA |Updated: Aug 16, 2017, 07:35 AM IST
The most important event this month was the Monetary Policy Committee meeting on August 2. Although a rate cut was discounted, Reserve Bank of India (RBI) maintained neutral stance as the committee perceived the trajectory of inflation to rise from the current lows. Considering little room for further cuts, I feel it will difficult for 10-year G-ec to trade below 6.35%.
The rupee has continued to show strength due to high real rates, improved growth outlook and continuous supply side reforms by the government.
High positive real rates have kept the rupee strong and immune from the global shocks, we witnessed a sell-off in the equity markets which, in turn, saw the rupee depreciate from 63.60 to 64.20.
The forex reserves have touched a record high of $392.86 billion as on August 4, mainly driven by the rise in foreign currency assets. India continues to have narrowing current account deficit and strong capital inflows with around $8.98 billion in equity while $18.83 billion in debt.
Nifty has not yet witnessed a 5% or more of correction since the intermediate rally began in December 2016— longest streak in nearly two decades.
Therefore, there is a scope that the latest correction could last a bit longer and have another 3%-5% decline.
The Securities and Exchange Board of India’s (Sebi) recent action against certain companies is another indication of how seriously the administration is working to cut down on any manipulation with time.
US Federal Reserve members support the view of balance-sheet reduction, laying down the path for resolute action in September. They have succeeded in their goal with the jobless rate at a 16-year low of 4.3%, but have failed to lift inflation to its 2% target. The possible reasons for this could be better technology and demographic deflation.
On the other hand, lack of progress in areas of healthcare, tax reforms and infrastructure spending have prompted market participants to abandon their long positions on the dollar.
European Central Bank (ECB) is expected to start reducing its QE programme soon, by tapering the number of asset purchases it makes each month.
Th risk to long rupee outlook could be a sustained phase of risk aversion in global equities or any major geopolitical issues arising out from the Indo-China Doklam standoff or US-North Korea issue. The major event to be tracked could be Chinese leadership composition next month.
Considering all the factors, I expect the rupee to stay within the range of 63.70 to 65.10.
The writer is country head — global markets group, IndusInd Bank
