The Indian rupee closed stronger this week at 49.01 levels on account of a superficial positive scenario in the global economy. The local unit was fairly range bound in the entire week, ranging in between 48.75 to 49.20 levels with a momentary spike to 49.45 levels on account of defense and Crude oil related dollar demand.
he headline inflation for the month of September turned out to be stubborn at 9.7 pct y/y with the only relief was that the number was not uglier than expected. The big push comes from food prices, which rose by 1.4% over their August levels; primary articles which rose by 1.3% month-on-month and fuel prices which rose by 0.84%.
The positive was that manufactured products rose by only 0.2% over August, and excluding food products, the manufacturing index was up only 0.1%. However, a rate hike by 25 bps in the RBI’s Oct. 25th monetary policy review seems to be imminent. With regards to the inflation, it will hover above 9 pct y/y for the month of October and November and is expected to ease from the month of December as the base effect comes into picture and the new harvest enters into the global market. The month end forward premium closed at 134 paisa which has enhanced a bit from its previous week’s closing indicating a dollar demand in one year forward market.
Looking towards the stock markets, the local stock markets performed well on the back of global optimism regarding the solution of the most critical problem facing the global economy, the European sovereign debt crisis. The BSE’s benchmark Sensex gave an encouraging closing above 17000 levels to close at 17082.69 levels, up by 198.77 pts while the NSE’s Nifty closed at 5132.30 levels, up by 54.45 pts. With regards to the S&P 500, which is a leading indicator of the performance of global stock markets, is expected to continue the appreciation in the next week with the Quarterly results of companies of the likes of Apple Inc. coming in. Indian bourses are expected to follow the S&P 500. It must be noted at this point that the Nifty is experiencing a strong support at 5000 levels. This gives a signal that the local currency unit can show a momentary appreciation in the next week but still the trend is of a bullish dollar. Our target still remains intact at 50 levels for the USD/INR pair in the medium term. Importers are recommended to cover their imports at dips below 49 levels in the next week.
The Euro experienced an encouraging rally to 1.3878 levels. The G20 has again firm support for the Euro and the activities it is undertaking to contain its debt problem. The G20 has agreed to strengthen the IMF in order to increase the firepower required for the funding the debt ridden countries and for the recapitalization of the lender banks. However, in this process the investors in Greek bonds are expected to experience a haircut of the magnitude of 60 pct. During the week the parliament of Slovakia approved the enhancement of EFSF. S&P downgraded Spain for lack of growth; it seems that the rating agencies are becoming over cautious after their so called “negligence in vigilance” during the Subprime crisis.
In the commodity markets Gold is expected to give a sharp correction in the next week. It closed for the week in green at 1679.27 levels. The Indian Gold market has touched the level of 27000 with the depreciation in the rupee against the Greenback. Indians are now giving more preference to paper Gold rather than physical Gold these days. The Crude oil closed for the week in green at 87.36 levels.
Source : indiainfoline.com