The Indian rupee recouped most of its losses and traded marginally lower, as rally in the domestic equity markets during the second half of the week increased further capital inflows. Rupee recovered from its lows on optimism that interest rate cuts and fiscal stimulus worth 7% of GDP have rescued India from worldwide economic slump. Spot Rupee declined 0.59% over previous week to close at Rs.47.10 against the dollar. Dollar losing the steam in the second half of week, also helped rupee to recuperate.
One month non deliverable forward contracts are trading at Rs. 47.16, marginally weaker than onshore spot rate. Indian equity benchmark SENSEX was up by 5.31% to close at 114625.25, the highest weekly closing since 10th August 2008. Foreign investors have bought Indian equity worth $3.5 billion in the month of May. India’s inflation rate, as measured by the wholesale price index, remained unchanged at 0.61% in the week ended May 16, compared with the previous week. Overall trend in inflation is down and it is expected to remain benign for some time. As inflation is low, it gives headroom for central bank to cut rates to spur economic growth.
India’s GDP growth looks promising
India's economy grew more than expected in the last quarter of FY2009. Economy expanded at 5.8% in the three months to 31st March, led by increase in government spending, the statistics office said on Friday. For whole year of FY2009 economy grew at 6.7%. Vehicle sales and the production of cement, electricity and refined petroleum are showing signs of revival. India’s better-than-expected growth in the March quarter, which matched the pace of expansion in the previous three months, is a sign that the worst may be over for the economy.
US dollar remained under pressure
The dollar lost early gains against major counterparts, as rise in greenback proved to be short lived amid better than expected economic data and relatively firm equity markets. Robust risk appetite among traders took away safe haven luster of dollar. Dollar Index, which measures greenback against six major currencies, has lost by almost 6% to the lowest level since early October. Yen, the second lowest yielding currency, also lost ground as rise in yen carry trade exerted pressure on Japanese currency. Euro managed to rose against dollar, as rising consumer confidence, better than expected German employment data boosted 16-nation currency.
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Future outlook
The rupee has appreciated by more than 5.5 percent in the month of May, as growing optimism about Indian economic growth amid stable government is boosting foreign capital inflows. Strong performance of domestic equity markets have vindicated the fact that investors confidence has improved dramatically, enhancing investors and traders risk appetite. After wtnessing sharp gains in previous couple of weeks, we expect rupee to consolidate at current levels bfore appreciating further.
The Spot rupee touched a high of 48.08 before marking a weekly closing at 47.10 (+0.23). Rupee rose for first three days but met with resistance at 10 Day-EMA and never managed to close above it. Rupee has closed below 50 Week-EMA (47.45) for second time, which can act as a short term resistance. Daily and Weekly MACD Histogram are in negative territory, indicating further appreciation. 14-Day RSI is trading near oversold area (33). For the week, resistance is seen at 47.87/48.65 whereas support is seen at 46.54/45.98. Short term traders who have been short at higher levels can book profits to reenter at higher levels.
