Rupee likely to stay broadly in range

The USDINR pair fell over 0.3 percent for the week, posting its first weekly loss in three in a week dominated by flows rather than major events or factors. The Indian rupee ended marginally higher on Friday (25/7/2014) as heavy dollar demand from importers to meet month-end commitments was offset by greenback sales from custodian banks, continuing a pattern of largely range-bound trading. Rupee gyrated between 60.00 and 60.32 levels in an extremely thin trading week. Good foreign buying in Indian shares and debt markets is keeping the Rupee well supported while dollar demand from importers and nationalised banks is keeping a check on it. Another major development was that Finance Minister, Arun Jaitely approved 49% foreign investment in insurance companies through the FIPB. This move will help insurance firms to get the much needed capital from overseas partners. India's foreign exchange reserves rose to $317.85 billion as of July 18 compared with $317.04 billion in the week earlier. Rupee ended the week at 60.10 levels compared to its opening level of 60.30. In the forward segment 1mth, 3mth, 6mth and 12 mth annualized forward premia closed at 8.19%, 8.50%, 8.49% and 8.33% compared to its opening at 8.16%, 8.38%, 8.37% and 8.20% respectively.

INDIAN STOCK MARKET

Markets were on a firm footing for the week ended July25, supported by continuous buying from foreign institutional buyers and robust global cues which lifted the benchmark indices to fresh record highs. On Thursday, the Sensex registered its longest 8-day rally in the almost two-years. The 30-share Sensex, surged 1,265 points between July 15 and July 24. Over the last five trading sessions, the Sensex gained 485 points or 2% to close at 26,127 and the Nifty advanced 127 points or 1.7% to close the week at 7,790. Both the indices had hit a record high of 26,300 and 7,841 on the last trading day of the week. During the week market witnessed FII inflows to the tune of $400.51 million in equities and $1.09 billion in debt, making it total net inflows of $1.49 billion.

OUTLOOK

Fundamental
On the domestic front, in absence of any major driving factors, Rupee will continue to trade in a range. However, as mentioned above the barrage of data due in the week will chart the course for further movement. Any surprise especially from FOMC policy decision will impact the Rupee. Besides, market will continue to monitor movements in other Asian currencies and moves in domestic shares for clues in the near-term. As mentioned in our earlier report also that any escalation of tension ranging from Ukraine to Libya onto Iraq and Israel could offset signs of improving economic fundamentals at home. Other than that Rupee is likely to stay broadly steady. Factors that will remain positive for Rupee include – foreign flows in equity and debt market, narrowing twin deficits, slowing inflation, improving investor sentiment on political change, government’s sell-off drive in PSUs. On the negative side factors to watch out for include- RBI intervention in forex market aimed at fully offsetting its short forward position, spillover risks from hardening of US rates, strengthening of the dollar, global crude prices etc. Broadly Rupee is expected to trade in the 59-62 range as we have been repeating in our past reports.

Technical
As mentioned in our previous report, USDINR remained rangebound and area around 60.35 provided resistance to the pair. The technical trend remains largely unchanged for the USDINR pair this week also. Most of the indicators are giving neutral bias suggesting a rangebound trend in the coming week. 60.28 followed by 60.46 will be immediate resistance levels for the pair. A breach of the same is unlikely to take it much beyond 60.60. On the other side the pair can find initial support around 59.96 region followed by 59.82. Below that strong support is seen at 59.64 levels. Week’s Range : 59.70 – 60.50. Trend : USDINR pair likely to continue to remain broadly rangebound.