Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Currency
INR could witness further depreciation bias. The USD/INR fell 2.6% to 49.58 from
yesterday’s close of 48.33. Overall, it has depreciated close to 12% from its recent lows
of 44.07, thereby creating nervous questions. While the initial bit of depreciation was
led by bunched up Iran oil payments, the sudden weakness of the INR has been led by
the recent risk aversion globally. INR could be poised for more near-term depreciation
with the absence of any intervention from the RBI. While in the near term there appears
a risk of USD/INR breaching the 50 mark, from a more medium-term perspective we
should see the Rupee to settle in a range of 46-49 unless there is an absolute meltdown
in the global markets. We change our average FY2012E estimate to 46.30.
Free fall for the INR; global sentiments remain the main reason
The INR today exhibited almost a free fall of around 2.6% to 49.58 from yesterday’s close of
48.33. This level compares with levels last seen in March-May in 2009 when the Rupee touched a
low of around 51.77. We believe that much of this movement was due to global sentiment issues
emanating from the US and Euro area region. The FOMC in its latest meeting met market
expectations by envisaging to elongate the maturity profile of securities it holds. It also seeks to
reinvest the maturity amounts under mortgage-backed securities (MBS) back into MBS starting
October 3 and not into US treasuries. However, the market was unhappy with the gloomy picture
painted by the Fed for the US economy whereby it indicated ‘significant downside risks to the
economic outlook’ and ‘continuing weakness in overall labor market conditions’.
Added to this is the ongoing debate on the Euro area policies to address the debt-crisis issue in the
region. Both these issues have led to a ‘flight-to-safety’ and hence a dollar-supply squeeze, thereby
suddenly distorting the dollar demand-supply equation in the domestic market. The USD/INR has a
significantly high negative correlation with the EUR/USD pair (see Exhibit 2). Hence, with further
EUR/USD dips, the USD/INR runs the risk of further depreciation bias. The 10-year US treasury yield
is down by around 20 bps to 1.75 from levels seen at the start of the week indicative of the return
to safety by investors. Gold, however, which is seen as another safe haven, has not seen
comparable appreciation given the concurrent appreciation in USD.
Technical analysis suggests further downward pressures on the INR
Given the sudden sharp depreciation pressure, we resort to technical analysis to throw some light
on the very near-term movement of USD/INR. We see risks of INR moving into the range of 50-52.
From a strictly technical perspective, today’s close of 49.58 potentially risks the INR breaching the
next retracement level of 50.2 and then to 52.15 (100% retracement of the 2-year downward
move from 52.14 to 43.84; see Exhibit 3).
Our medium-term view remains of a depreciation bias for the INR
Fundamentally, with India being a current account deficit economy with slowing growth
accompanied by worries on the fiscal side and also with a high inflation, the bias for the Rupee
would be on the depreciating front. In the past few quarters, the concerns for the balance of
payments were more argued from the current account side due to the high oil and commodity
prices. Even as oil and commodity prices could fall with the global slowdown story, exports and
invisibles are also likely to suffer. However, the risks to the balance of payments could now emerge
more from the capital account side in the event of a continued risk aversion in the global financial
markets that could lead to flows back into the safe haven of the dollar and away from emerging
market economies. From a medium-term perspective we estimate the USD/INR average for
FY2012E at 46.30 and 3QFY12E and 4QFY12E both at an average of 47.50
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Economy
Currency
INR could witness further depreciation bias. The USD/INR fell 2.6% to 49.58 from
yesterday’s close of 48.33. Overall, it has depreciated close to 12% from its recent lows
of 44.07, thereby creating nervous questions. While the initial bit of depreciation was
led by bunched up Iran oil payments, the sudden weakness of the INR has been led by
the recent risk aversion globally. INR could be poised for more near-term depreciation
with the absence of any intervention from the RBI. While in the near term there appears
a risk of USD/INR breaching the 50 mark, from a more medium-term perspective we
should see the Rupee to settle in a range of 46-49 unless there is an absolute meltdown
in the global markets. We change our average FY2012E estimate to 46.30.
Free fall for the INR; global sentiments remain the main reason
The INR today exhibited almost a free fall of around 2.6% to 49.58 from yesterday’s close of
48.33. This level compares with levels last seen in March-May in 2009 when the Rupee touched a
low of around 51.77. We believe that much of this movement was due to global sentiment issues
emanating from the US and Euro area region. The FOMC in its latest meeting met market
expectations by envisaging to elongate the maturity profile of securities it holds. It also seeks to
reinvest the maturity amounts under mortgage-backed securities (MBS) back into MBS starting
October 3 and not into US treasuries. However, the market was unhappy with the gloomy picture
painted by the Fed for the US economy whereby it indicated ‘significant downside risks to the
economic outlook’ and ‘continuing weakness in overall labor market conditions’.
Added to this is the ongoing debate on the Euro area policies to address the debt-crisis issue in the
region. Both these issues have led to a ‘flight-to-safety’ and hence a dollar-supply squeeze, thereby
suddenly distorting the dollar demand-supply equation in the domestic market. The USD/INR has a
significantly high negative correlation with the EUR/USD pair (see Exhibit 2). Hence, with further
EUR/USD dips, the USD/INR runs the risk of further depreciation bias. The 10-year US treasury yield
is down by around 20 bps to 1.75 from levels seen at the start of the week indicative of the return
to safety by investors. Gold, however, which is seen as another safe haven, has not seen
comparable appreciation given the concurrent appreciation in USD.
Technical analysis suggests further downward pressures on the INR
Given the sudden sharp depreciation pressure, we resort to technical analysis to throw some light
on the very near-term movement of USD/INR. We see risks of INR moving into the range of 50-52.
From a strictly technical perspective, today’s close of 49.58 potentially risks the INR breaching the
next retracement level of 50.2 and then to 52.15 (100% retracement of the 2-year downward
move from 52.14 to 43.84; see Exhibit 3).
Our medium-term view remains of a depreciation bias for the INR
Fundamentally, with India being a current account deficit economy with slowing growth
accompanied by worries on the fiscal side and also with a high inflation, the bias for the Rupee
would be on the depreciating front. In the past few quarters, the concerns for the balance of
payments were more argued from the current account side due to the high oil and commodity
prices. Even as oil and commodity prices could fall with the global slowdown story, exports and
invisibles are also likely to suffer. However, the risks to the balance of payments could now emerge
more from the capital account side in the event of a continued risk aversion in the global financial
markets that could lead to flows back into the safe haven of the dollar and away from emerging
market economies. From a medium-term perspective we estimate the USD/INR average for
FY2012E at 46.30 and 3QFY12E and 4QFY12E both at an average of 47.50
No comments:
Post a Comment