Daily Market Commentary: Monday, October 1, 2012

Domestic and International Highlights:

The Indian Rupee opened weaker at 53.00 levels after closing 52.85 levels on Friday. The intra day  range for the rupee is seen between 52.75 - 53.20 levels.

According to the data released Friday, India's current account deficit shrank by 24% in the April-June period from an all time high in the previous quarter, returning the balance of payments to surplus.

The current account deficit fell to USD 16.55 billion in the June quarter, down from an all-time high of USD 21.76 billion in the March quarter. The trade deficit fell to USD 42.5 billion in the June quarter, down from around USD 51.6billion in the March quarter.

India's balance of payments returns to surplus in April-June 2012. The overall balance of payments that includes both the current as well as capital account transactions for the quarter ended in a lower surplus of $521 million ($5.4 bn) on account of a lower capital account surplus of $16.9 billion ($24.9 billion).

The Indian equities closed at higher levels on the back of positive sentiments over reforms, power sector restructuring and government borrowing at budgeted levels. The momentum on Indian equities and currency is positive but markets could stumble at higher levels on concerns on domestic and global issues.

On the global front, Spain is expected to ask for more bailout funds to shore up its banks. Riots in Greece also added to market nervousness at higher levels. The Asian markets dropped after a report showed China's factory output shrank for an 11th month amid a global economic slowdown that has sapped export demand.

The US treasury yield continues to trade lower at 1.61% reflecting the investor's concern over the ongoing worries in the global economy. The benchmark 10-year bond yield closed down 1 basis point at 8.15%. It had dropped as low as 8.11% in opening deals, its lowest since July 30.

The Liquidity measured by bids for repo in the LAF (Liquidity Adjustment Facility) auction of the RBI tightened marginally last week. The Bids for repo averaged to Rs 72,400 crores on a daily basis last week against an average of Rs 71,000 crores. Liquidity is expected to ease in the coming weeks on the back of government spending and banks releasing liquidity in October.

Outlook: Rupee next crucial support (52.10) .Importers still maintain buying on dips for Oct months and very partially for November month. Next stop loss for importers at higher side will be 53.50 levels, if breaks concrete covers need to be taken immediately. Exporters can look at covering at higher levels.

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