Rupee can gain against Euro But, Rupee can fall against Emerging Currencies Can test 59-58, but can rebound towards

Transcription

1

2 1 Jan-10 Apr-06 Oct-06 Apr-07 Apr-08 Oct-08 Oct-09 Apr-10 Oct-10 Apr-14 May-10 Aug-10 Dec-10 Mar-11 Jul-11 Jan-12 May-12 Aug-12 Dec-12 Mar-13 Jul-13 Jan-14 Aug-01 May-02 Mar-03 Dec-03 Sep-04 Jun-05 Mar-06 Jul-11 Jan-12 Jul-12 Jan-07 Jul-08 Jan-10 Nov-10 Aug-11 May-12 Feb-13 Nov-13 Jan-13 Jul-13 Jan-14 Apr-14 RECAP (02-Apr-14): USD-INR / Nifty 6753 / Euro Our Jan-14 quarterly forecast was for a Possible range of 60-67, with bullish bias. After being ranged between over the last 5 months, the market has broken the lower end of the range and has tested The last three months have seen a further improvement in the Current Account Deficit, easing of inflation and a strong rise in the stock market. Globally, the markets have largely taken in their stride fears about continued Taper, Chinese slowdown, Emerging Markets stress and the Russia-Ukraine crisis. EXECUTIVE SUMMARY Sensex up in itself, and against Dow and Dollar Macros Rupee positive, but need to be watched Dow Jones can rise even if Yields rise Rupee can gain against Euro But, Rupee can fall against Emerging Currencies Can test 59-58, but can rebound towards Sensex rising by itself and against Dow and $. Positive for Rupee 02-Apr-14: 22,551 Sensex/Rupee -38%. Numerically negative but intrinsically positive. Sensex Mthly - Bullish Breakout w w w.kshitij.com The Sensex has made a new life-time high breaking above earlier multi-year resistance in the region. This bullish breakout is visible on the Line, Candles and Log charts and is potentially very bullish for the coming months, with periodic corrections of course. Our longterm study on the Nifty suggests an initial target of 7000 or on Sensex. There may be some chances of a profit-taking pullback in April, but that may be taken as a good buying opportunity by the market. Sensex/ Dow Weekly w w w.kshitij.com Very importantly, the Sensex is looking potentially very bullish relative to the Dow Jones. The above chart shows the Sensex/Dow relative value (1.3686) has bounced from the Support region on uptrend lines coming from May-03 and Nov-08. It has also broken the downtrend since 1.84 (Oct-10). As such, we can look for an eventual 17% rise towards 1.60 over the coming weeks, while the market remains above This is a very positive development for India and the Rupee. Sensex/ $: Can it target 390? Sensex / Rupee - Wtd Avg Correlation (0.2) (0.4) (0.6) (0.8) (1.0) Further, given the recent Rupee strength, the Sensex has seen a strong rise in Dollar terms also. There is a Bull Flag on the chart above which gives us an upside target of 390. Some immediate Resistance is available at 380, but the overall outlook is bullish while above 350. The Sensex-Rupee correlation has come down from +20% to near -37%, breaking the uptrend since -90% (Feb-12). This is a very positive development for the Rupee, as a numerically negative correlation is good for the Rupee. A further improvement towards -60% would impart a lot of strength to the Rupee.

3 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 Apr Oct Apr-06 Oct Apr Apr Oct Oct-09 Apr Oct EOF () PMI and IIP could move up 01-Apr-14: India March PMI 51.3 India Jan IIP (+0.11% y/y) India PMI & IIP India PMI India IIP It is good that the PMI has risen back above 50 in Nov- 13, breaking a downtrend that was in force from (Jan-12) till (Aug-13). As such, the IIP may also manage to remain above 175 and move higher. However, caution is warranted. Note that the March PMI (51.3) has dipped below the Feb PMI (52.5). With a Modi-win fully priced in for the Elections, look for the Q4- FY14 corporate results to move the markets now. Good/ Bad: WPI Inflation down. But, will it remain down? WPI 4.68% Although the RBI looks at the CPI now we are unable to use it yet as it is a new Index with a very short history India WPI Index and Y/y Change India WPI India WPI Y/y w w w.kshitij.com Need to see if the WPI Inflation will remain below 5% or not. Next data to be released on 15-Apr % 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% WPI Inflation has declined to 4.68% in Feb-14 and this has certainly helped Rupee gain in March. The Mar-14 data will be released on 15-April. If the number remains below 5% and falls further towards 4%, it can lead to further Rupee strength. But, as the RBI has warned and the chart alongside suggests, there can be a danger of a fresh increase in the WPI in the coming months. If so, there could be a danger of Rupee weakening again. Data needs to be watched carefully. Good/ Bad: Can India s Ex-Im Ratio improve further? Export-Import ratio shows how much of Imports is financed by Exports. A higher number indicates strength in the Balance of Payments. India's Export-Import Ratio 100% 95% The clampdown on Gold imports has certainly led to a sizeable reduction in India s 90% Trade Deficit. This has led to a 85% big improvement in India s 80% Export-Import ratio from 75% 60.9% in to 69.9% in This is commendable in 70% itself. But, the Export-Import 65% ratio is in a downtrend since 60% We need a substantial increase in Exports along with 55% continued low level of Imports in FY in order for the Ratio to break the downtrend and rise towards 75%. The worry is that a relaxation of the curbs on Gold imports could drive the ratio down towards 65% again. The danger is that the improvement in all the domestic macro-economic variables above may already be fully reflected in the Rupee s recovery so far. Continued improvement may be needed for further Rupee strength. Any fresh slip up on the macro front and the Rupee can start weakening again.

4 May Jul Sep Nov Jan Mar Jun Aug Dec Feb Mar May Jul Sep Nov Jan Feb Apr Jul Feb Sep Apr Nov Jun Jan Aug Mar Oct May Dec Jun Jan Aug Mar Oct May Dec Jul Feb Sep Mar May Dec Jul Feb Sep Nov Jun Dec Jul Feb May Jul Sep Nov-11 6-Jan-12 2-Mar Jun Aug Dec-12 1-Feb Mar May Jul Sep-13 8-Nov-13 3-Jan Feb-14 Dow Jones can rise even as Taper continues 01-Apr-14: Dow Jones US 10Yr Yield 2.77% US QE $55 bln US QE ongoing Taper expected $10 bln per month While the domestic macro-variables may/ may not be unequivocally supportive for the Rupee, there is some hope from the global macro econiomic situation US 10Yr Yield (LHS) v/s Dow Jones (RHS) 10 Yr Dow With the US Yields likely to rise further (on continued US Taper), can the bull run in the Dow Jones be derailed? The chart above shows that in the last 20 years, periods of postive correlation between the 10Yr Yield and Dow Jones (blue shaded areas) have been longer than periods of negative correlation (red shaded areas). Or, the Yields and Dow have moved up or down together more often than not. So, there are decent chances that the Dow Jones could keep rising even as the US 10Yr targets 3.5% in the coming months. This would be good for global Equities including India. Euro-Rupee can fall 02-Apr-14: Bad: Rupee may be bearish against Emerging Currencies Euro-Rupee - Bearish The Euro-Rupee cross rate (82.43) has recently broken below the 34-week Moving Average and is trading below 83.00, a multi-month Range Support. There are decent chances of further decline towards 80 in the coming weeks. This should be bearish for Dollar-Rupee as well because a fall in Euro-Rupee usually makes a fall in Dollar-Rupee more likely Rupee bearish agst Emerging Currencies This chart indexes the Rupee against a few Emerging currencies. A fall in the index implies Rupee weakness and vice versa. The Rupee looks bearish in the coming weeks as the index is testing a long-term Resistance in an overall downtrend. If this Resistance holds, there are chances of a 7% fall towards 76, suggesting Rupee weakness against the Dollar as well. But, the Rupee will be very strong just in case the channel Resistance breaks.

5 4 Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Near term Support seen at , maybe even But, it can produce a rebound towards USD-INR Quarterly Candles Can dip to 59, maybe 58. But, can rebound from there Our Jan-14 Quarterly had said a fall to 58 would need a fall in Inflation and rise in Reserves. Since Inflation has indeed fallen, the Rupee has strengthened past 60 and coud test 58. But, there is Techinical Support in the region as follows: After a 21-week MA Bear Crossover, the USDINR usually falls a further %. This gives us targets of and based on the 21-week MA Bear Crossover at on 28-Feb paise is a reasonably stretched downward extension after a 200-day MA Bear Crossover. This gives us a target of based on the current 200-day MA at The maximum downward extension has been 400 paise, which would give us a target of The last leg of the big upmove to in 2013 had started at in July-13. Thus, could very legitimately be a Support target. There is trendline channel projection Support at and there is trendline Support near 59.00, as shown above. All in all, is near-term Support and can produce a bounce towards Currently known political situation has been considered while framing the analysis. Further Rupee appreciation may need the Elections to indeed give us a stable government with good policies. INDIA'S BALANCE of PAYMENTS For BOP Component Est Jan 14 Est Mar 14 Comments & reasons for changes Est Mar 14 Current Account Sharp fall in Trade Deficit estimate Exports from $179 bln to $142 bln. CAD Imports estimate down from $56.8 bln to Balance of Trade $23.8 bln. Government CAD estimate Invisibles is $35 bln Capital Account Our estimate for Capital Inflows 56.7 Equity Inflows remains largely the same FDI (Net) Portfolio Investments Debt Inflows ECBs Strangely, the net accretion of $ External Assistance bln here does NOT show up in the 0.4 Banking Capital (ex NRI Depos) RBI's Weekly FX Reserves. So, 1.9 NRI Deposits either our calculation is wrong or the 28.8 Short term Trade Credits RBI's Forward Sales liability is to be 5.1 Rupee Debt substracted. 0.0 Other Capital Errors & Omissions Change, Reserves *

6 5 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 The KSHITIJ Hedging Method performance The KSHITIJ Hedging Method is a complete decision making framework for managing FX Risk. It has been tested in REAL time and has been profitable in four of the last six years. Overall, the Method has delivered an average positive contribution of 0.81% p.a. Results of the actual Export Realisations and Import Payments (net of all Hedging Costs) are given alongside, compared against the Rupee (No Hedge scenario), against the KSHITIJ Dynamic Benchmarks and against Forwards (Fully Hedged scenario). Over 8 years, on average, Exporters have gained 0.35% more than Forwards and Importers have paid 0.45% less than Forwards. KSHITIJ Hedging Method since Apr '06 - Mar '14 Ex-Im Margin 39 paise / $ KSHITIJ Benchmark Import Payment Rate Export Realisation USD-INR Results of the KSHITIJ Hedging Method upto March Yr Avg Export Realsn Benchmarks Dollar-Rupee Import Paymt Fwd Rates Exp - Imp % Gain 0.7% 5.7% 2.26% 1.54% -1.15% -0.23% -0.33% -0.77% 0.81% Average Export-Import Margin 0.81% Comparing against Rupee - Unhedged scenario Yr Avg Export Realsn 0.83% 7.59% -5.26% 2.80% 1.37% -1.05% -1.29% -2.16% 0.12% Import Paymt -0.10% -1.77% 7.35% -1.24% -2.55% 0.82% 0.96% 1.41% 0.68% EXIM P/L 0.73% 5.83% 2.10% 1.56% -1.18% -0.23% -0.33% -0.76% 0.80% Comparing against Benchmark Yr Avg Export Realsn 0.71% 1.88% 4.11% 2.62% -0.93% 1.43% 3.32% 4.76% 2.30% Import Paymt 0.03% 3.64% -1.81% -1.06% -0.22% -1.66% -3.66% -5.57% -1.49% EXIM P/L 0.73% 5.52% 2.30% 1.56% -1.15% -0.23% -0.34% -0.81% 0.82% Comparing against Forwards - Fully Hedged scenario Yr Avg Export Realsn -0.10% 0.19% 2.75% 0.24% -1.46% 0.48% 0.75% 0.14% 0.35% Import Paymt 0.82% 5.24% -0.48% 1.28% 0.32% -0.71% -1.09% -0.92% 0.45% EXIM P/L 0.73% 5.43% 2.27% 1.52% -1.14% -0.23% -0.34% -0.78% 0.80% Copyright 2012 Kshitij Consultancy Services. All rights reserved. Suite 2G, 2nd Floor, Tower C, Hastings Court, 96 Garden Reach Road, Kolkata , INDIA Phone: / 12 info@kshitij.com Website: Cover Photo: Whatsapp Cover Design: Nilanjana Mitra Disclaimer: The above views are based on the latest available information. Though the information sources are believed to be reliable, the information is not guaranteed for accuracy. While the views are proffered with the best of intentions, neither the author, nor the firm are liable for any losses that may occur as a result of any action based on the above. World financial markets, and especially the Foreign Exchange markets inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved. Past performance is not necessarily an indicator of future performance.