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Economy
India
FY2012E INR: Bias towards depreciation. We believe India’s CAD situation and
policy rate movements would be important pointers for the INR. However, global
developments in sovereign debt issues in Europe and the way policies in the European
region manage these issues would have high relevance for capital flows in emerging
markets. Continued uncertainty in Europe and a nascent revival of growth in the US
lead us to believing in a strong USD through 1HCY11E. Though the INR can show some
appreciation bias in phases, linked to flows, a large current account deficit (CAD) and
not-too large balance of payments (BoP) surplus will limit this. We expect the USD/INR
to stay in a band of 44.50-47.00 through a significant period and average 45.50 in
FY2012E
High CAD leads to financing concerns amidst volatile capital flows
In FY2012E, volatility in the global currency markets is likely to be significant and domestic market
fundamentals of current account gap could continue to pose problems. We estimate that the
trade gap could stay wide as the import bill remains high with higher crude oil and metals prices,
consequent to the robust liquidity position in the global markets. On the other hand, exports may
underperform as (1) major global economies continue to show slack growth momentum and (2)
Asian economies cool off. We expect large CAD to sustain. Capital account is likely to remain
strong on the back of PSU divestments by the government and favorable global liquidity flows.
Global risk positioning to have an influence on INR
We continue to view the situation in Europe gravely as the policy measures undertaken have failed
to address structural issues. Peripheral Europe with its large fiscal deficit, fragile banking system
and lack of international competitiveness is almost trapped with the common currency not
allowing the economies to adjust in an optimal manner. The fiscal austerity measures are also likely
to reduce growth potential in these economies. Though European policy makers are under
pressure to preempt deterioration in financing requirements, any escalation of the crisis could see
a different priority for the EU in CY2011E.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
India
FY2012E INR: Bias towards depreciation. We believe India’s CAD situation and
policy rate movements would be important pointers for the INR. However, global
developments in sovereign debt issues in Europe and the way policies in the European
region manage these issues would have high relevance for capital flows in emerging
markets. Continued uncertainty in Europe and a nascent revival of growth in the US
lead us to believing in a strong USD through 1HCY11E. Though the INR can show some
appreciation bias in phases, linked to flows, a large current account deficit (CAD) and
not-too large balance of payments (BoP) surplus will limit this. We expect the USD/INR
to stay in a band of 44.50-47.00 through a significant period and average 45.50 in
FY2012E
High CAD leads to financing concerns amidst volatile capital flows
In FY2012E, volatility in the global currency markets is likely to be significant and domestic market
fundamentals of current account gap could continue to pose problems. We estimate that the
trade gap could stay wide as the import bill remains high with higher crude oil and metals prices,
consequent to the robust liquidity position in the global markets. On the other hand, exports may
underperform as (1) major global economies continue to show slack growth momentum and (2)
Asian economies cool off. We expect large CAD to sustain. Capital account is likely to remain
strong on the back of PSU divestments by the government and favorable global liquidity flows.
Global risk positioning to have an influence on INR
We continue to view the situation in Europe gravely as the policy measures undertaken have failed
to address structural issues. Peripheral Europe with its large fiscal deficit, fragile banking system
and lack of international competitiveness is almost trapped with the common currency not
allowing the economies to adjust in an optimal manner. The fiscal austerity measures are also likely
to reduce growth potential in these economies. Though European policy makers are under
pressure to preempt deterioration in financing requirements, any escalation of the crisis could see
a different priority for the EU in CY2011E.
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