Daily Market Commentary: Tuesday, August 14, 2012

Domestic and International Highlights:

The Indian Rupee opened at 55.54 levels after closing yesterday at 55.34 levels against the dollar. The rupee is seen trading in a narrow range for last few days on account of missing actions from global markets and Euro Zone. The intraday range for the rupee is expected between 55.40-55.80 levels.

The Asian peers are trading steady with investors waiting for figures from Europe and the United States later in the day. The Gross domestic product (GDP) in the Euro zone is likely to shrink 0.2% from the first quarter of the year.

The growth forecast for India this fiscal is expected to decline to 6% or below by various international and local agencies as a deficient monsoon deteriorates the economy which is already facing by high inflation, fiscal deficit and weakening currency.

The Monsoon session started on 8th August is still to announce policy measures to support the ailing economy. The Finance minister P Chidambaram earlier outlined a plan to improve the local conditions but faces significant hurdles by the opposition in the parliament on issues such as allowing FDI in multi-brand retail and reducing subsidies in diesel.

The Reserve Bank of India (RBI) Governor again repeated his hawkish stance on Monday, emphasizing his concern that inflation remains too high. According to him, India is seeing lots of inflationary pressures in the economy, attributed by the demand factors and not just supply shocks.

RBI Governor's comments clearly reflect the main concern is still inflation for them not the growth. The market will keenly await the WPI figures schedule to release today which will further determine the interest rate scenario. The RBI's next scheduled policy review is on September 17, 2012.

The Indian bond yields rose on Monday amid worries on rising inflation, reducing the chances of a rate cut from the central bank and making it harder for the government to pass fiscal reforms such as a diesel price hike. The July wholesale prices are expected to have risen 7.37% from a year ago, compared with the annual rise of 7.25% in June. The benchmark 10-year bond yield closed up 4 bps at 8.20%.

Outlook: Importers were suggested to cover for August near 55 levels. May still cover who has not covered on dips. Exporters may start covering very partially close to 55.60 (Plan A). Exporters keep a stop loss of 54.80 (Plan B) in case rupee keeps appreciating to cover partially. Trend stays USD/INR bullish.

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