Money Bol

As the holiday season sets in markets seem to be mostly listless with a slight bullish bias for the USD. The dollar is at its year high. However, while the bullish dollar has had a strong impact on almost all the majors with Euro shedding around 400 pips and currently trading in the 1.4200 level, the INR has mostly held itself for the time being. Volumes dropped and not many new positions are being taken up. With the Sensex and Nifty up for the year and good growth numbers, the India story seems to be intact. We feel that the INR would gain strength from within and inch closer to 45 levels in the next quarter.

Market Developments

Global Outlook

• The fortnight saw markets finally slipping into the holiday mode and had very thin volumes across the board. USD continued its strongest push and rose against all currencies. US GDP annualized forecast came in a tad lower at 2.2 % as against the expectations of 2.8%. Fed vouched to keep interest rates in the band of 0-0.25% for a long time. Lower than expected New Home Sales and Mortgage Applications figures reasserted Fed’s view as the economy is still recovering.

• Euro zone outlooks a little uncertain with the Greece and Spain being downgraded in the fortnight. This outlines the inherent weakness in the Euro area countries is a concern. Economic data out during the fortnight was more or less as per expectations avoiding shocks. UK (QoQ) GDP shrank by -0.2% against expectations of -0.1%.

• Asian Markets ended higher than a fortnight. With the Dubai crisis been solved at least for the time being investments in emerging Asia continued and risk appetite continued to grow. In general, after a strong period of consolidation we can expect Asian equities to touch new levels in 2010.

• Commodity prices have rebounded suggesting a recovery in the near term. Gold dropped from its peach and currently trades at 1100 levels Oil prices are hovering around 75$/ barrel and gaining demand is expected to keep prices upward biased. 

Domestic Outlook

• The domestic outlook continues to be positive with most market participants expecting growth around 7-8% in GDP. The economy got another boost with core industries growing around 5.3% year on year. While equity markets have continued to be in consolidation mode for a long time now, we can expect 18000 levels in January 2010. Food prices are expected to be controlled and come down from the historic highest levels with the government expected to take some steps to increase supply to manage inflation.

• The major question in the new year would be when the central bank raises interest rates. While interest rate increase is unlikely to have any significant impact on inflation, but considering political constraints market is already discounting a CRR hike of 25 basis points. While credit demand remains subdued through the banking sector, industries  have been accessing other cheaper channels of credit. While credit growth forecasts of 18% might fall short, we can expect credit to pick up substantially in the last quarter.

• USDINR narrowed to a much smaller band 46.60-47.00 levels. While most market participants expect the rupee to touch around 44 levels USD’s strength is an area for those short in the pair. Trading is expected to cautious in the start of the New Year.

Related posts:

1. USD-INR Choppy and Uncertain
2. Fourteen Companies: One Market
3. Indian Economy – Annual Review and Analysis
4. Indian Economy – Review and Analysis, February 2010
5. UAE Economy: Impact of Dubai crisis