Rupee Weekly

INR Weekly
November 30, 2009
CMP: Rs.46.6875/USD



Fundamental Analysis
A crucial week for international finances as Chinese and Dubai news rattled the stock exchanges the world over. The knee jerk reaction was felt in USDINR pair which fell during the beginning of the week but rose there after developments in global markets affected the currency pair. Looking at the Chronology of events initially it was better than expected American economic data lead to fall in USDINR pair however it was
followed by news flows from Dubai and China which affected the sentiments across the globe. Dollar futures opened the week at 46.55 and fell to 46.21. However panic was seen on Friday where Nifty fell by 200 points to 4806 and USDINR touched 47.16. However recovery was seen which lead to USDINR closing at 47.74 levels.

Bullish Economic Data
American economic data was better than expected that lead to fall in dollar index. Dollar

index breached the 75 levels
from downside and made a
low of 74.30 after data
indicating various
consumption patterns of
American individuals
increased drastically.
Personal Spending rose by
0.7% from -0.6% while
Personal Income rose by
0.2% in September. Housing
indicators indicated a smart
recovery as New Home Sales
rose 430K from 405K
previously.
American economy continued to rise with third-quarter gross domestic product rising by2.8%. The Federal Open Market Committee called the dollar’s depreciation “orderly” in minutes of its November meeting released yesterday.


Chinese Economy
China’s stocks fell as concern banks will have to raise capital to meet swelling loan demand dragged financial companies lower. Bank of China Ltd., which said this week it’s studying options to replenish funds The nation’s five largest banks submitted plans to regulators to raise funds. Lenders were told by the nation’s banking regulator to estimate potential deficits in 2010 based on their own loan forecasts and capital ratio targets. China has cut interest rates five times since September 2008 and encouraged $1.3 trillion of lending to boost domestic spending as the global recession curbed demand for the country’s exports.

The Dubai Factor
Asset classes across the globe were rattled after a proposal from Dubai to delay debt payments set off a slide in stocks and higher-yielding assets worldwide. Dubai World, the government investment company burdened by $59 billion of liabilities, will ask all creditors for a “standstill” agreement as it negotiates to extend debt maturities. The news shook markets recovering from the collapse of the U.S. housing bubble and contagion that threatened to rupture the global financial system last year. Though Abu Dhabi is the United Arab Emirates capital, the seat of most of its oil wealth and the largest of the seven self-governing emirates by size, it took a back seat in recent years as Dubai undertook spectacular real estate projects as a tourism and finance hub. Dubai's population rocketed to 1.5 million, as white-collar professionals from around the world took plum jobs in a country marketed as a liberal enclave in the Gulf sun.


Conclusion
Looking at the movement of USDINR during the week the question still remains whether the downward trend still exists in the pair or whether the trend has changed. Liquidity scenario in the country continues to be comfortable. Money supply (M3) which comprises of currency in circulation, bank deposits and money invested in other saving plans grew 17.8% in past two weeks to Rs.51.7 trillion. The bond yields continued to fall with benchmark yields quoting at 7.18% from 7.25% earlier this week. Industrial production is on rise with low credit off take leaving surplus with many a banks. Looking at such high liquidity it is hard to believe that USDINR will strengthen in coming days. As the famous trading jargon goes “NO SINGLE EVENT CAN CHANGE THE TREND”, we continue to have a bearish view on the pair for a target of Rs.45/USD in
coming quarter.

Technical Analysis

The chart of USDINR (spot) has two different stories to tell. Firstly, a sort of double
bottom can be seen being made at 46.2 levels. The trendline joining the top prices has
been breached but only on intraday basis. The closing has been below the trendline
indicating high probability of a fake breakout. Overall a breach below 46.21 levels will
take the pair further down. On upside 47.50 will act as a crucial resistance.

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USD/INR DAILY

Panic gripped the markets world over after news of postpontment of debt by the Dubai government. Dollar rose to make a high of Rs. 47.16/usd while Nifty fell by 200 points from day’s opening as a possible default threatened to start a second round of world wide recession. However as the day progressed markets bounced back from the lows with Nifty closing 63 points down at 4941 points while USDINR closed at Rs.46.68/USD. Dollar index also felt the heat with benchmark rising to 75.57 levels from a low of 74.22 levels witnessed two days back. The news that rattled the world markets was Dubai World, the government investment company burdened by $59 billion of liabilities, will ask all creditors for a “standstill” agreement as it negotiates to extend debt maturities. Although it is expected that its other oil rich neighbors will come to its rescue, sentiments seem to have been affected negatively for short period of time. In India although the equity markets were spontaneous in following the line of global asset classes, bond yields remained unaffected as 10 year bench mark yield quoted at 7.18% unchanged from previous day. Today quarterly GDP data of India will be released. Markets have discounted a rise of 6.3% rise in GDP. Anything above that will lead to fall in USDINR. For day we expect a gap down opening with 46.35 level acting as a crucial support for the pair.

Yesterday Market Summary

Last trading day: Friday, 27 November

 It was a volatile week for the market that ended in the negative. Experts think it's a difficult market to trade, but still feel that after some consolidation market may head higher. They feel investors could accumulate select stocks. This week's poor figures were: Sensex and Nifty both down almost 2.2%. BSE Midcap index was down 2.32%, BSE Smallcap index down 2% over the week. BSE Realty index was down 6.35%, BSE IT index down 4%,BSE Bankex index down 3%, BSE Metal index down 2.3%,BSE Consumer Goods index down 2.4%. On the gaining side, BSE FMCG index was up 0.25%.  

 It was a day of high drama on Dalal Street today, also the first day of the December series that closed on high volumes again. Dubai World announced a bad debt of $60 billion sending jitters around the world (European banks having $40 billion exposure and many Indian companies too have exposure to the Dubai market). Our market opened gap down (almost 300 points on Sensex and 100 points on Nifty) on this news but made a smart recovery at close with positive cues from European markets. Most experts believe the Dubai crisis would affect sentiments and not make any real impact on the economic fundamental of emerging markets. Sensex shut shop at 16632, down 222 points and Nifty is at 4941, down 63 points from the previous close. CNX Midcap index was down 1.49% and BSE Smallcap index was down 2.14%. The market breadth was negative with advances at 219 against declines of 1061 on the NSE. Top Nifty gainers included Suzlon,Ranbaxy and Unitech while losers were Siemens, IDFCand Axis Bank.

 Nifty nearly reached its 100 DMA at 4750 and saw a smart recovery from there, says Ashwani Gujral, technical analyst, on CNBC-TV18. The Dubai crisis may lead to a short-term correction where our market will consolidate and then resume its upmove, he says. If US markets don't fall on Monday then maybe Nifty could have made a bottom at 4800, he adds.  

The Dubai crisis has helped emerging markets correct, something that was badly required, says Mark Mobius of Templeton Asset Management on NDTV Profit. There is a huge backlog of IPOs in India, China and EMs, he says. But the Dubai default jitters are unlikely to see any real damage on the economic fundamentals of EMs, he adds. The correction could be used to do select buying, he says.