Post FOMC markets expectation

Three probable outcome from FOMC

1. Hawkish guidance signalling start of rate-hike cycle in June-September 2015 (leading to weak equity & bonds and strong dollar)

2. Dovish guidance deferring the rate hike to beyond 2015 (leading to strong equity, firm bonds and weak dollar)

3. Neutral stance being cautiously patient in wait-and-watch mode looking for better clarity on growth, inflation and unemployment rate (leading to stability at current levels with mild bullish undertone on equity & bonds and consolidation on the dollar).

Impact on India markets:

See NIFTY at 8470-8620 (on hawkish tone); 8850-9000/9120 (on dovish stance) and consolidation at 8620-8850 (on neutral stance).

USD/INR extreme scenarios are at 63.00-63.50 (on hawkish stance); 61.50-62.00 (on dovish stance) and consolidation at 62-63 (on neutral stance)

EUR/INR extreme scenarios are at 63.50-64.50 (on hawkish stance against EUR/USD at 1.0-1.0250); at 68.00-69.00 (on dovish stance against EUR/USD at 1.10-1.1250) and consolidation at 66-67 (on neutral stance with EUR/USD at 1.05-1.0750).

10Y bond may not have much traction with whatever outcome from FOMC, with most domestic (and external) cues in favour of inflation and twin-deficits for consolidation not beyond 7.60/7.65-7.80/7.85%.

Fingers crossed, and may not be surprised if FOMC turn out to be non (and irrelevant) event!

Moses Harding

Land, Labour and Legal reforms critical to retain India euphoria

Need to place national interest ahead of self

India is known for sacrifice (and compromise) for national interest. Indians have sacrificed wealth (and self) for national well-being, since pre-independence years. Then, why such stiff resistance to reforms that would take India forward to greater heights? Is the Indian politics happy with where India is today? It is high time, India needs political reforms (and maturity) to put the nation ahead of the interests of self and party; post the elections, it is sensible for all parties to come together with the common agenda of nation building. When we open up India to the developed world, why not import political maturity from them?

Land reforms critical for infrastructure build

India needs land to build international standard roads, rail, ports, power, telecom, water, SEZs etc to build robust infrastructure to spur growth in manufacturing and agriculture sectors. India also needs labour reforms for building India growth story at sustainable 10% year-on-year. The top-up is the legal reforms to provide comfort to investors (and lenders) to put more monies to work for productive investments, which is critical to generate employment and wealth. All these will lead to significant upgrade in social well-being and prosperity.

Need to have fair play in acquisition

Any acquisition is based on fair value, acceptable both to the giver and acquirer. And, anything is available for a price based on the need (and urgency) of the buyer or seller. In the current context, India (not the Government) is the buyer with urgent need, and the seller (who owns the land) gets double benefit, from sale value and direct benefits from India well-being. Many countries (developed and emerging) have demonstrated this for the ultimate benefits for the people. The belief now is that Land is acquired for the benefit of corporate business houses, and not for India. The Government has the duty to kill this myth in the bud to bring all political parties in loop for this common objective.

Infrastructure need is huge; Land reforms is only a beginning

India plans to build 30KMs of road per day across 2/4/6/8 lanes to build connectivity across India for smooth movement of goods, services and people. It is long term cost (and time) efficient. This vision can not be realised without availability of land, not held by the Government. If more than adequate compensation is put on the table ensuring that livelihood is not put at risk, land owners will be more than willing to support the Government. Extend this to other economic and social infrastructure, the need is huge and so is the opportunity for monetisation of land which may not be remunerative for the holder. Compensation can also be in the form of cash and structured equity to provide monthly or yearly dividend. Land acquisition process can be smooth with this combination, and will be win-win for both.

Euphoria build over political stability to push reforms is at danger

Stake-holders built re-rating of India (and its financial markets) based on hope (from domestic optimism) and luck (from external factors, over which "powers that be" has no control). The beneficial impact from external luck factors is now behind, and lot is expected from realisation of hope from domestic actions, measures and execution. There is lot at stake for India; reforms across land, labour and legal can pull-in Trillions of investments to spur consumption. The beneficial impact from combination of investment and consumption "push" will bring in significant capacity expansion for job and wealth creation, not only to make India the best place to do business but also to upgrade standard of living for peaceful coexistence. All sounds very good, but the trigger is with the political parties to have common agenda of "nation building"; will they? It is now or never!

Let good sense prevail!

Moses Harding

RBI endorsement on the Budget 2015 is step in the right direction

RBI rate-cut not a surprise and well-timed to arrest euphoria dilution

Market Pulse asked for 25 bps rate-cut ahead of Holi festival and RBI obliged, seeing merit in the demand! While the rate-cut (before 7th April policy review date) was surprise to many, what is more intriguing is the post-action sell off across  asset classes despite being a pleasant surprise! I would consider the rate-cut as best-timed, as prevention act rather than cure, and as an exhibit to all stakeholders that the Government and RBI stay in the same pitch (and wave length) to work on fiscal & monetary dynamics to stay stimulus to growth, diluting growth-inflation conflicts. There is lot of noise around Budget'15 not meeting the FY16 fiscal deficit target of 3.6%; higher estimate at 3.9% against aggressive growth target of 8.1-8.6% is seen as major risk in play. This worry, along with tight money (and liquidity) conditions in March was putting pressure on markets; rate-cut came in to arrest sharp push-back, and to extend stability in financial markets ahead of end FY15. But for this rate-cut, NIFTY would have already gone weak below 8450, Rupee into 63 and 10Y bond yield over 7.85%. Thank you for the good thinking, Governor Rajan. The positive take-away is the emergence of common agenda (between the FM and RBI) to manage growth-inflation dynamics to enable monetary policy to stay supportive to consumption and investment.

Global cues stay supportive to India optimism

Global markets have already shifted from risk-off to risk-on mode driven by liquidity over-hang, near zero returns for extended period on risk-off assets and signs of improvements in growth against comfort on ease in disinflationary pressure. DJIA has already shifted base from 16850-17000 to 17500-17650 (with resistance now at 18350/18500), pushing the US 10Y yield up from 1.50-1.65% to over 2.15% (on risk of FED start of rate-hike cycle from June-September 2015), and diluting investor appetite on Gold with push-back from $1285-1310 to 1160-1185. Brent recovery from $45-46 into $63-65 is also looked positive and win-win for all. While strong favourable interest rate play pushed $ higher (DXY from 80 into 97.50-100), impact on emerging markets currencies has not turned spoilsport with minimal impact on the Indian Rupee. All taken, existing supportive global tailwinds is there to stay in steady mode, awaiting FED stance on interest rate moves.

India medium term outlook stays positive with minor concerns in the short term

Both Railway & Union Budget 2015 has set up road map for FY16-FY19 and if the set targets are achieved, it would lead to second term for Narendra Modi for extended term for 2019-2024 and beyond; so, it is a "survive-or-perish" period for Modi Government. This sets up strong intent (and personal agenda) to exceed expectations, hence there is no doubt whatsoever on the all out efforts that would be put to achieve targets. It would be survival of the fittest period for the team members of Modi. The FY16 agenda on BFSI and infrastructure sectors is step in the right direction. This will set up strong base to script the "Make-in (for)-India" agenda to scale up capacity on manufacturing and agriculture sectors. All these will lead to fiscal prudence giving deep pockets to spend for social well-being. The strategy is commendable and looks great on paper, and building tactical solutions is work-in-progress; concerns remain on execution capabilities and if these doubts are removed in FY16, it will be a great bull ride into FY17-FY19 and beyond!

India equity market in bullish consolidation mode

NIFTY has been in roller-coaster ride between 8450 to 9150 since 30th January with 8996 to 8470 to 8913 to 8669 to 9119 before close around mid-point of set post-Budget trading range of 8700/8750-9150/9200. The major comfort is from lift of long term strategic base to 8650-8750 with firm resistance now at 9150-9250. If the 12 month re-rating (of over 50%) since February 2014 from 5900 to current (8900) is carried through FY16 with another 10-12% top-up into 9800-10000, it would be good job done! For this, steady improvement in macroeconomic fundamentals need to become visible to stay in comfort to avoid trigger of profit-booking. There will be good appetite from domestic investors given limited upside in Fixed Income assets, while foreign monies continue to chase mix of valuation gains (in equity and bonds) and "carry" advantage from Rupee stability. For now, retain strategic buy zone at 8700-8750 (risk only below 8650-8700 for 8450 before strongly up), but not yet sure of sustainability beyond 9150-9250. FED and Global rating agencies hold the trigger for back into bullish rhythm beyond 9150-9250.

Bank NIFTY has lead from the front with 100% re-rating since February 2014 from below 10000 to over 20000. It has been more volatile during the pre-budget 2015 to post rate-cut period with 20907 to 18226 to 19532 to 18489 to 20541 before stability at 19350/19450-19900/20000. The good thing is that volatility is limited at set strategic focus zone of 18200/18450-20450/20650. For now, see support at 19000-19150 with strong resistance at 20000-20150 ahead of 20500-20650 while the recent peak of 20907 expected to stay safe through FY16 with sideways mode at 18400/18650-20650/20900 in the short term till next round of rate-cut. Banks will be under earnings pressure in FY16 (to match high valuation) against limited upside on Investment portfolio, higher provisions and limited visibility on credit pick-up.

All taken, stakeholders need to see sustainable improvement to achieve (and surpass) set FY16 GDP growth target at 8.0-8.5% to provide comfort on fiscal deficit at 3.6-3.9%, while worries on inflation and CAD are behind. There is nothing to panic at this stage, and good to stay in back-and-forth mode in NIFTY at 8700-9200 and Bank NIFTY at 19000-21000.

India Bond market is good with limited upside

The beneficial impact of ahead-of-schedule rate-cut on 10Y bond is shift of focus from 7.75-7.85% to 7.60-7.75%, building for tenor premium over the overnight base rate of 7.5%. From here, the expectation is for another 25-50 bps rate-cut between June-December 2015 subject to achievement of growth-fiscal prudence conditions. While CPI stability around 5% can be taken as granted, issues revolve around fiscal prudence and FED monetary policy stance. Both these factors are seen as risk in play for rate pause till June 2015; beyond there, there is no clarity on either extended rate pause till end of 2015 or another 25-50 bps rate-cut. The worst case of steady Repo at 7.5% will guide stability in 10Y bond at 7.65-7.80% and best case scenario at 7.35-7.50% on shift of Repo rate to 7.0-7.25%. There are no cues in favour to expect shift of operating policy rate from Repo to Reverse Repo rate in FY16. The squeeze in the India-US 10Y yield spread at 5.50-5.60% is risk on India 10Y bond with firm resistance at 7.65-7.75% on US 10Y stability around 2.25% (for 7.65/7.75-7.85% consolidation).

The strategy ahead is straight forward; unwind 10Y benchmark 8.40% 2024 at 7.65-7.70% awaiting new 10Y bond in April with coupon at 7.55-7.65%. While strategic unwind happens at/below 7.70%, traders appetite will be seen at/above 7.80-7.85% for last-mile chase into 7.65% to guide stability at 7.70-7.85% till the new 10Y benchmark bond comes into play.

Rupee strong on time-decay adjusted basis

Rupee has been in back-and-forth play at 61.25/61.35-62.35/62.45; importers (and RBI) lend support for the $ at set lower end to cover near/short term imports at forward value below 61.85-62.35 and exporters (and carry-trade) appetite good at higher end to sell 12M $ at forward value at/above 66.85-67.00. This hedge strategy has helped to provide Rupee exchange rate stability with RBI in readiness to arrest excessive moves either-way.

What next? Most cues continue to stay supportive to Rupee; major risk is from strong $ (against global currencies) and comfort from robust off-shore flows and elevated FX premium. While most wish for REER linked Rupee depreciation (to support exports), demand-supply dynamics continue to be in favour of Rupee and RBI in $ buy-mode to provide equilibrium. Adjusting for part of time-decay, focus is now at 61.50/61.65-62.35/62.50 with unchanged hedging strategy; importers hedging near/short term $ payables at forward value of 62.00-62.50 and exporters covering medium/long term $ receivables while 12M at/above 67.00-67.15. All taken, USD/INR stability at 61/61.50-62.50/63 is win-win (and acceptable) to all stake-holders. At this stage squeeze in India-US rate differential is not seen as major risk on Rupee against the elevated 1-12M FX premium.

EUR/INR push-back from 71.00-71.25 has stretched beyond major support at 68.00-68.25 driving the EUR/USD from 1.1450-1.1550 into 1.07-1.10 against USD/INR pull-back from 61.55-61.70 to 62.35-62.50. With the kind of sharp fall from 80 to below 68 since mid December 2014 (in 3 months), prefer stability at 65-70 (against EUR/USD at 1.05-1.10 and USD/INR at 62-62.50/63); stay neutral on break-out bias, not ruling out concerted Central Banks intervention to prevent extended bull-run in #DXY beyond 97.50-100.

Moses Harding

Macroeconomic targets: Signs of "Achha din" ahead!

Efforts to build partnership between the Government and BFSI Regulators

In a democratic set-up, it is important for the financial regulators to be catalyst to Government's efforts to improve economic productivity (and efficiency) for uplift of social well-being (and to dilute inequalities). In this context, role of RBI, SEBI and IRDA are very critical, and should be seen walking together with the Finance Ministry (and the Government).

As elected representatives of the people, the Government is answerable, responsible and accountable to the vote bank; hence it is not unfair to allow the Government to set targets on macroeconomic fundamentals and the tolerance (or comfort) zone, which the regulators should work on. The agenda for the regulators is to frame such rules that would help to achieve equilibrium in demand-supply, growth-inflation, CAD/exchange rate - interest rate, consumption-investment etc to achieve the common agenda - economic value creation for social prosperity!

Aggressive targets, but not over ambitious

The set targets for FY16-FY19 looks great to carry India optimism into the next decade beyond May 2019, when Modi will submit his score card to the vote bank for extension for his 2nd term. The achievement of the set targets would obviously need joint efforts of the Government and the financial regulators to facilitate execution through aggressive out-of-the-box creative (and innovative) measures:

Targets through FY16-FY19:

GDP growth : 8.0-10.0%

Fiscal Deficit : 3.0-3.9%

CPI inflation : 4.0-6.0%

CAD : 0-1.5%

If these numbers trend into the right (and desirable) direction, then there is no stopping for India joining the elite super power group of countries.

What is expected from the RBI

RBI has now good comfort on the CPI (currently steady around mid-point of 4-6% comfort zone), but seen unsettled on upward revision in FY16 fiscal deficit budget estimate from 3.6 to 3.9% of GDP. There are reasons to acknowledge this stance as one-off and long term positive: (a) to adjust for previous years window-dress, it's one-time sacrifice without continuing with financial adjustments to achieve set target and (b) sacrifice on fiscal deficit for productive economic investment is seen as positive. RBI's concerns on Rupee exchange rate against squeeze in interest rate differential is not relevant now against expectation of long term stability in Brent Crude at $50-80 and CAD easing to historic low's, not ruling out turnaround into CAS if "Make-in-India" agenda drives exports.

RBI has major role to play to support the Government:

(a) Driving the operating policy (Repo) rate  into lower end of 7-8% tolerance zone maintaining spread of 2% between Repo and CPI rate to guide balance between investors-borrowers, consumption-investment, FII appetite-exit and stay competitive to pull-in long term inflows. If all goes well with CPI into 4%, there would be need to shift the operating policy rate from Repo to Reverse Repo rate maintaining system liquidity in surplus mode.

(b) It is an important agenda for RBI to divert liquidity from risk-off investments to core sectors that are starving for cash. It is also important to provide push-triggers while the business viability is work-in-progress till monies start chasing these opportunities. The push factors are from providing cost/yield advantage and inclusion of lending to these sectors as priority to economic growth. Government has shown the way through flagging infrastructure focus for FY16-FY19 as growth-investment-consumption drivers, and its time for RBI to give its weight in support.

Time for SEBI to activate capital markets as funding engine for growth

SEBI has done a lot in upgrading the financial infrastructure in the capital market through ensuring transparency, fair-play and building tight control mechanism around operations, risk management and compliance. While there is robust back end, it is time to focus on the front end business to bridge effective bond between investors and borrowers through development of robust primary and secondary markets. At this stage, capital market (equity and debt) are easily accessible to the top-end users (who are already chased by financial intermediaries). The flow of monies to core sectors and small & medium enterprises is insignificant.

SEBI has major role to play to broaden and deepen the capital market:

(a) There is need to create 3-tier platform retaining the existing coverage and to expand coverage for SMEs (to support manufacturing sector) and infrastructure sector (to release non-credit funding to revive existing projects and for capacity expansion).

(b) The existing product coverage are mostly plain-vanilla in nature; risk-reward is not equally distributed between the issuers and investors, risk being heavy on the investor with upside retained by investors. It is time to turn creative and innovative in pushing the issuers (and Asset Managers) to facilitate (and upgrade) product manufacturing skills for higher investor participation. The issue is not on availability of liquidity (both domestic and external), while the concerns are in channeling the money to where it is required. Lot is to be done as the first step to pull-in monies to infrastructure sector through IDF (debt focus) and AIF (equity focus).

Insurance companies to emerge as major funding engine to infrastructure growth

The liability profile of Insurance companies is the best fit for infrastructure funding to build matched maturing asset - liability profile. As of now, major portion of investments (of Insurance companies) flow into Gilts and AAA credit. This means that adequate monies are not made available to entities who are critical to building economic capacity and are deprived of availability of liquidity at affordable cost.

It is time for IRDA to review the investment strategy of Insurance companies to strike good balance between investors interest and economic opportunities. The need is to shift risk profile from conservative (low risk - low reward) to moderate, and make more liquidity available to infrastructure, manufacturing and agriculture sectors. It is essential for Insurance companies to provide leverage to Government investments, which in turn will set up momentum to private sector participation.

Growth visibility will improve if financial regulators turn as facilitation engines

The efforts to build partnership between Government and Regulators is step in the right direction. If all seen together in the same pitch (and right wave length), stakeholders sentiment (and confidence) will step up pace towards the set targets. Signs of "all is well"!

Moses Harding

Budget FY16: Consolidation mode before building scale (for better impact)!

Neutral impact from combination of fiscal and monetary set up

Economic Survey said it before the Budget FY16, on compromising fiscal prudence for investment allocation for growth. It is not a surprise that when revenue leakages is huge (against window dressed fiscal deficit number over previous years), it is tough to make both ends meet; targeting FY16 fiscal deficit at 3.6% and making monies available for investments. It is hard fact, but real! The agenda therefore is to plug revenue leakages; money not lost is revenue earned! There are lot of measures to improve revenue monitoring (and collection) efficiency to arrest big time slippage and avoidance. Another good measure is to take out the non-financial assets in the system to make it interest earning for the investor and putting the asset to work; need to look at the execution bottlenecks. If it works, it is good upside (both from investment and consumption) for economic capacity expansion. Budget FY16 has not absorbed the huge upside from coal and spectrum auctions, thus keeping sufficient room to deliver pleasant surprises by beating set targets (and high expectations). All taken, will give the benefit of disappointment to Mr.Jaitley for being real and upfront without attempting to give ambitious projections, and will give one more year for cleansing the administration with effective governance before catching up! Black money, tax avoidance and benami assets have been tolerated for long, and efforts to eradicate them is long term advantage for the economy, and it is worth a 1 year wait for fiscal prudence.

It is also ensured that RBI does not see this as risk (from higher fiscal deficit) to pursue dovish monetary policy. The retention of CPI tolerance level at 6% (against current 5%) is direction to RBI to move ahead with baby-steps rate-cut (despite higher FY16 fiscal deficit estimate), aligning Repo rate at 1.75-2% spread over actual CPI print. RBI should also take comfort from steady net market borrowing of Rs. 4.5 Trillion, not seen as big burden on the system when FII flows will be in plenty against huge $ appetite from RBI, infusing Rupee liquidity in the system. Both fiscal and monetary dynamics combined, there is no major risk on the economy to send negative vibes to stake-holders.

Thrust on infrastructure on expected lines

The thrust on infrastructure is visible through higher allocation of funds and efforts to make alternate products viable (and attractive) to investors through tax and return efficiency. The FY16 growth momentum is heavily dependent on infrastructure revival (of existing projects) and capacity build-up to support manufacturing and agriculture sectors. FY16 growth momentum is skewed towards what happens in infrastructure sector with plenty of opportunities, challenges and risks.

Disappointment from short of bold reforms and "out of the box" innovation

The Government had to play with limited band-width, while in struggle to push crucial reforms in the Parliament. The strategy is seen to keep it simple (and pro-investment) and stay in consolidation mode for 1-2 years till the number game in Parliament gets better; makes sense! The intent therefore is to stay liberal on rules to attract investments in the next 2 years, before review of off-shore investment policies. This is big positive to open up long term, sustainable (and accelarated) liquidity flow into India now. The concern is from not doing much to make doing business easy in India. Beyond finance (and investments), there is no focus on other irritants (from land, labour, legal etc) that keep investors in wait-and-watch mode.

Matter of fact adjustments in taxation rules

There are minor adjustments thrown here and there with "net-net" insignificant impact. The intent however is to keep taxation rules simple, remove ambiguity (and complexities) and bring transparency (and clarity). The upside here is huge from two counts - one from squeezing the black economy and plug leakages from the white economy. When this is achieved, there will be room for rationalisation to push down tax rates. Till then, cosmetic touches is done to tax the super rich (and the affordable class), and being bit liberal on the middle tax (to put more monies in the hand for investment and consumption).

Government is seen to be planning for long-haul play (for minimum 10 years till 2024), hence taking time to settle down for consolidation

The Government is not seen to be in a hurry seeing a Cricket Test match kind of opportunity ahead, when opposition is down and out. The agenda therefore is on "house keeping" and set up strong platform (as catalyst) to build accelerated growth momentum in the years ahead. The investor (and consumer) confidence is from steps to set up of clean administration, effective governance for higher economic efficiency.

Above average performance score

Mr.Jaitley played for the average score this year considering as work-in-progress for distinction and 10/10 before Budget FY19 (ahead of next election), thus setting up slow but steady pace for long-haul marathon race. Performance evaluation exercise covers both what is delivered and expectations (and capabilities) ahead. While giving an average 5-on-10 for what is delivered, I would tend to add another 3 for what is in store ahead. It is an 8-on-10 rating for the Finance Minister for being real now (FY16-FY17) and building optimism for turning efficient in the years ahead!

Bullish consolidation in financial markets 

All taken, there is nothing to panic on India financial markets. There is nothing to fear or cheer on equity markets, thus into consolidation mode. See NIFTY in consolidation at 8700-9200; support is from pipe-line rate-cuts and resistance is from stretched valuation, hence prudent to play end-to-end. Bank NIFTY is set for consolidation at 19000/19250-20500/20650.

10Y Gilt retains bullish momentum. The outlook is for shift of consolidation range at 7.45-7.55 by on or before first week of April (from current 7.65-7.75%) enroute to 7.25-7.35% in the second half of 2015. Most cues from dilution in growth-inflation conflicts and favourable demand-supply dynamics support bullish momentum ahead.

Rupee bullish undertone gets only better as USD gains everywhere else. Retain USD/INR focus at 61-62 (within the well established long-term strategic support at 58.00-58.35 and resistance at 63.65-64.00. The only risk on Rupee is from the extent of RBI $ bids, as all other factors are supportive to sustainability of Rupee bullish momentum, which would open up bullish extension beyond 61 into 59.50-60.50.

So, Budget FY16 is out of the way giving comfort to stake holders to retain the India optimism; next big event is the 25 bps rate cut on or before 7th April. Stay positive with prudence.

Moses Harding 

India Gilts outlook: Extended bull run on more rate cuts ahead!

Repo rate at 7.0-7.25% is certain and soon!

The FY16 CPI forecast is at 5.0-5.50% and RBI's formula (to give decent inflation adjusted return to promote financial savings) for Repo rate setting is 1.75-2.0% over the CPI rate. This says it all without any ambiguity! The comfort is also from January CPI print at 5.1% and February print expected to be sub 5% from low prices of imported commodity items. Combination of stability in commodity prices, strong Rupee and absence of demand-push impact are good reasons to give medium to long term comfort for extended CPI relief into 4.0% (lower end of 4-6% comfort zone). The only risk factor is from the usual March (end of FY) syndrome - tight liquidity and temporary spike in near term money market rates before stability at start of FY16. Having said this, it does not make sense to sell long-dated Gilts (to lend in short term money market), when there is clarity of 30-40 bps upside from current level. Combination of CPI outlook and RBI formula, range for Repo rate through FY16 is 6.75/7.0-7.25/7.50%. This sets up immediate 25 bps rate-cut on or before 7th April policy review to shift 10Y bond focus range from current 7.70-7.75% to 7.45-7.55%. Beyond there, dynamics remaining unchanged, see Repo rate at 7.0-7.25% between July-September 2015 driving 10Y yield further down into 7.20-7.35%, seen as end of rally completing the chase from 8.50-8.65%. It is better for RBI to get this done soon, when Banks shift appetite from risk-off Gilts to risk-on credit.

All taken, despite pressure on Call money rate (causing negative carry for some time), it is good to stay invested at 7.73-7.75% (extension is God-sent) awaiting in patience for 7.45-7.55% ahead of 7.25-7.35%; it may not be an extended wait, though! For now, allow sideways at 7.68/7.70-7.73/7.75% before shift into 7.40-7.55% soon, not later than 1st week of April 2015.

Stay with the bull run riding the combined advantage of favourable demand-supply dynamics and rate direction.

Moses Harding

USD/INR outlook: Rupee bull run gaining steam!

All cues in favour of Rupee, only RBI against!

Rupee recovery from 62.45 into 61.70-61.85 despite strong $ against global currencies and sustained $ purchases by RBI is sign of extended bullish momentum into 61.20-61.35 and beyond into 59.50-60.50. The stake-holders got jitters post the sharp weakness from 61.30 into set 62.20-62.45 support zone (12M $ resistance zone of 66.85-67.00), but $ couldn't hold its strength there on strong FII supplies and lead-lag play in the forward market absorbing elevated FX premium. Over all, it is back-and-forth play at set focus zone of 61.20/61.35-62.35/62.50 (12M $ at 65.50/65.65-66.85/67.00). What next?

I am unable to see one reason that could go against Rupee. India fundamentals stay firm retaining FII appetite, with no worries on dilution or exit. Interest rate play will continue to remain in favour despite 50-75 bps rate-cut in pipe-line. There is no major risk on Rupee despite squeeze in India-US yield differential on sustainable easing on India inflation. Importers are in no hurry even to cover ultra near-term liabilities seeing opportunity loss every time. All taken, RBI is the only risk factor against Rupee with the objective to cushion excessive Rupee appreciation. Till the going is good, RBI is ok with baby-steps Rupee appreciation, and the good is expected to stay for long!

The strategic play is now shifted to 60.95/61.20-61.95/62.20 with bias into 61.00 and beyond; hedging strategy, if at all importers wish to cover, could be based on short-term stability at 59.50-62.50. Believe exporters are in comfort post hedge of receivables while 12M at 68.00-68.50 and now at 66.85-67.00; those who have not, can track 12M $ at 64.00/64.50-66.35/66.85 for hedge strategy.

EUR/INR relief from 68.00-68.25 lost steam at set end of correction zone at 71.00-71.25; U-turn from there has hit the 1st objective at 69.00-69.25. The tone remains weak at 68.00/68.25-69.75/70.00 with short term objective at 65.00. Exporters were cautioned not to stay open, and EUR/INR is already down from 80.00 since mid December 2014, while it is manna from the heaven for importers and carry-trade play.

Rupee is the strongest of all and there are no signs ahead to give up this position in a hurry; till then, ride the Rupee bull wave with risk only beyond 62.50 against the USD and 71.25 against the Euro.

Moses Harding