We expect rupee would continue to lack momentum and uncertainty on the global front could trigger a move for the currency.
Navneet Damani
Rupee in July consolidated in a broad range of 74 and 75.50 despite volatility in domestic and global equities and as uncertainty between US and China escalated and disturbed the overall market sentiment. On the domestic front, FII flows in the equity segment has been quite supportive for the currency and at the same time stake sale by some big corporates also led to dollar inflows. If inflows led to rupee appreciation then dollar buying by the RBI is keeping gains capped for the rupee. In the last four months, FII fund flows have been to the tune of $134 billion in the equity segment and debt segment has witnessed an outflow to the tune of $1.6 billion. On the other hand, economic data released on the domestic front have been disappointing, but that has had little impact on the currency. Fiscal deficit number released at the end of the month showed it touched 83.2 percent of the full year target. Gross tax revenue declined 32.6 percent in the first quarter of the year from the corresponding year ago period with the centre's GST taking the maximum 47 percent knock, suggesting extreme consumer distress or caution.
For this month, market participants will be keeping an eye on the RBI policy statement and expectation is that the central bank could maintain a status quo on rates. Focus importantly will be on the commentary and a dovish outlook could trigger a directional move for the currency that has been consolidating in a narrow range. At the same time, fund flow from FIIs and pace of the flow will be important to see. Be it industrial production, manufacturing PMI or GDP number, all as such have been disappointing and not expected to witness much of a recovery in the near future. We expect rupee would continue to lack momentum and uncertainty on the global front could trigger a move for the currency.
Dollar has plunged against its major crosses and fallen to the lowest level since June 2018 on expectation of another stimulus package from the US, weaker-than-expected economic data and dovish outlook by the Federal Reserve. Last month, the dollar had one the biggest monthly drop in a decade and market participants witnessed no major respite in the greenback. Latest data released from the US showed the economy contracted by 32.9 percent in the second quarter, the steepest pace since the Great Depression. The report comes amid a recession that began in February and pulled first-quarter growth down 5 percent. This month, market participants will be keeping an eye on how the situation between US and China shapes up and also if economic data starts to deteriorate further.
We expect that the dollar could continue to remain under pressure following slower-than-expected economic growth and expectation of further stimulus package announcement from the US. As far as rupee (Spot) is concerned we expect it to quote in a broad range of 74 and in best case towards 73.5, but the larger under current remains of a weaker rupee towards 76.5-77.
The author is VP – Commodities Research at Motilal Oswal Financial Services.
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