DAILY MARKET REPORT: Monday - December 17, 2012

The Indian Rupee opened at 54.40 levels after closing at 54.48 levels on Friday. The Intraday range for the rupee is seen between 54.30 - 54.70 levels.

The central government will speed up the sale of stakes in state companies to revive the stock market and will push ahead with reforms aimed at spurring an investment recovery in the flagging economy, Prime Minister Manmohan Singh said on Saturday. The government is selling the equities of large public industries as a step to bring down the fiscal deficit.

Global ratings agencies have repeatedly warned India that it faces a credit downgrade if it does not tackle a high debt burden and the fiscal deficit.

After better than expected IIP and WPI figures, hopes raised for interest cut in the RBI monetary policy due for tomorrow. The RBI has not lowered interest rates since April because inflation remained above 7%.

The Asian markets are trading mixed after Japan's Liberal Democratic Party reclaimed power, a party that backs more economic stimulus returned to power, spurring a drop in the yen.

The Euro has posted an impressive rally, having gained against the US dollar. After months of uncertainty, the ongoing Greek debt saga appears to be moving in the right direction. Euro zone finance ministers finally agreed to release the second installment of bailout funds to Greece. The EFSF will release a total amount of EUR 49.1 billion, which will be paid out in several installments. Greece is scheduled to receive EUR 34.3 billion in the next few days, with the remaining funds to be delivered by March 2013.

The US 10 year treasury yield is trading higher at 1.72%. The Indian 10 year bond yields fell week on week with to 8.15% The Indian Bond market is hopeful of a repo rate cut at RBI's 18th December 2012 given the fall in inflation in November 2012 and on the back of government reforms.

Liquidity as measured by the bids for repo in the LAF (Liquidity Adjustment Facility) auction of the RBI was steady last week. Bids for repo averaged Rs 92,000 crores on a daily basis last week against an average of Rs 93000 crores seen in the week previous to last. Advance tax outflows will tighten liquidity this week and bids for repo are likely to be above Rs 100,000 crores. The government did not hold any bond auctions last week and is scheduled to hold a Rs 12,000 crore auction this week. State governments are auctioning Rs 9700 crores of loans this week.

Outlook: Uncovered Exporters wait till 54.80 to start covering partially . The 54.10 is still seen as a very crucial support, and rupee is seen holding above it. The breakout below 54.10 Levels and rupee sustaining below it for few sessions, would it push further to around 53.50 levels. Importer cover close to 54.00 (Plan A) and below and also use strict stop loss of 54.55-60 (Plan B) to cover the unhedged exposures. Overall USD INR bullish target 55.00 again.

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