Daily Market Commentary: Tuesday, August 21, 2012

Domestic and International Highlights:

The Indian Rupee opened stronger at 55.55 levels after closing at 55.74 levels on Friday. The rupee was seen drifting below 56 levels was mainly on account of the recovery in euro and after the government panel forecast a lower current account deficit. The intraday range for the rupee is expected between 55.20 - 55.70 levels.

The Asian peers are trading mixed before the US housing data and as investors held on to hopes the European Central Bank will act to lower the borrowing costs. The ECB has denied the weekend report which said the bank is considering buying the bonds of struggling euro zone countries.

The Leaders of Germany, France, the Euro group and Greece are scheduled to meet bilaterally this week. German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras holding a meet on Friday to discuss over the Greece's rescue plans ahead of a visit to Greece next month by global lenders to finalize their assessment of Athens' austerity reforms.

The Indian economy is expected to grow at 6.7% in the current fiscal year, less than an earlier estimate of 7.5-8% according to the forecast of the Prime Minister Manmohan Singh's Economic Advisory Council.

The foreign investment in Indian stock markets had crossed USD 11 billion so far this year. Foreign Institutional Investors (FIIs) have infused a net amount of USD 1.02 billion (about Rs 5,692 crore) in August so far, taking the total for this year to USD 11.4 billion (Rs 57,958 crore) in Indian equities. In addition, FIIs have infused Rs 708 crore in the debt market this month, taking the year-to-date investment to Rs 24,961 crore.

The benchmark 10-year bond yield closed down 2 bps at 8.24% on the Friday. The Liquidity as measured by bids for repo in the LAF (Liquidity Adjustment Facility) auction tightened last week as banks over covered their product to account for a holiday shortened reporting week. The government auctioned Rs 15,000 crores of bonds last week. The government is scheduled to auction Rs 15,000 crores of bonds this week.

Outlook: The Indian Rupee is expected to be in a range of 55 - 56 levels. Exporters were asked to cover partially at 56 levels while importers cover on dips.

(Source: Corporate Communications Team, India Forex Advisors Pvt. Ltd.)