The results of the elections will be announced next week. There can be huge volatility in the rupee (usd/inr). Unconfirmed reports suggest that the reserve bank of India (RBI) has been intervening to prevent the rupee from gaining below 60.00. The key reason for huge inflows and also for continued rise in Indian stock market is that a stable non congress government will be formed.
In case investor expectation does not happen then there can be a weakness in the rupee and also a correction in the Indian stock markets. One needs to be prepared for the best and the worst for next week.
In case investor expectation does not happen then there can be a weakness in the rupee and also a correction in the Indian stock markets. One needs to be prepared for the best and the worst for next week.
- Usd/inr is trading below the 100 day moving average as well as 200 day moving average. (100 day moving average: 61.6125, 200 day moving average: 62.0283,400 day moving average: 58.5250).
- In case usd/inr does not break 200 day moving average of 62.083 before the close of this month, then the chances of a fall to the 400 day moving average of 58.5250 are very high.
- The Reserve Bank of India (RBI) is very much prepared for huge outflows should there be a hung parliament. There will not be any 2013 style of weakness for the rupee. On the contrary if the expected NDA alliance gets a thumping majority then RBI will not be able to prevent sharp gains in the rupee.
- The best way to prevent rupee gains (if the need arises) is to open up gold imports. Opening up gold imports will result in very huge US dollar outflows.
- Fundamentally things have not changed for Indian economy. Food prices inflation is still a headache. Milk prices are being increased by Rs.1-Rs.2 per liter every three months on an average. There are lot of other examples of living essentials which keep on rising over ten percent every year and which if sustained will affect the masses. Continued rise in living essentials will result in a fall Indian savings rate. The long term effects of falling savings rate and increasing consumer debt can be devastating for the Indian economy.
- Emerging market like India are preparing for higher interest rates in USA around a years time from now. Taper by the Federal reserve has been more or less factored in by the markets. Uncertain circumstances leading to a huge emerging market outflows can never be judged. Central bankers like that of India and other still have fresh memories of the great 2013 outflows and the subsequent currency depreciation. Globally emerging markets are still not out the woods yet.
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