Indian Rupee ended at a 7-month high of 69.354/$

The strength in the Indian rupee continued for the second week in succession as the Indian Rupee ended at a 7-month high of 69.354/$. The rupee gained another 27 bps on Thursday setting up one of the sharpest rallies in recent months. Relentless inflows from FIIs of over $4 billion since the middle of February have been largely instrumental in giving a boost to the INR. The markets are also expecting the trade deficit and the current account deficit to taper in the coming quarters on lower imports. All these have worked towards keeping the rupee buoyant in the past few days.

The RBI has announced forex swaps to the tune of $5 billion on 26th March. Interestingly, the decision comes a day after the RBI announced the proposed forex swap; the date and the quantum of the first tranche were also announced. The RBI will swap dollars with banks for rupees. This will infuse rupee liquidity and bring down rates (in fact short end rates were down today). At the same time, absorption demand for dollars will prevent the rupee from strengthening at the cost of exporters. The RBI has been concerned about the recent strength in the Indian rupee as it could hurt exports.

Inflation could be showing signs of a turnaround supported by higher food prices. WPI inflation for February 2019 comes in higher at 2.93%. A couple of days after the retail CPI inflation came in higher; the WPI inflation has also shown signs of upward pressure. At 2.93%, the WPI inflation was higher than 2.76% reported last month. Primary articles consisting of vegetables, fruits, and dairy products saw inflation go up to 4.84%, which could be the first signs of food inflation coming back. Even fuel WPI was up at 2.23% for the month. The trend over the next few months could actually be critical.

After days of rallying by bulls, the Nifty and Sensex ended flat even as FII inflows surged rapidly. Foreign portfolio investors have infused over $4 billion since the middle of February even as domestic funds have been selling. As per a report in ET, the Nifty rally to 11,350 was largely driven by a surge in FPI flows. FPIs are investing in India on the back of increased political stability, hopes of earnings revival, stable crude prices and easy liquidity conditions in the market. The next few days will be determined by how the US-China trade deal and the BREXIT vote will pan out.

Brent crude crossed the $68 mark during the day but later tapered lower on supply pressure at higher levels. In its latest global oil demand projections, OPEC has further cut its oil demand estimates making a clear case for further cuts in OPEC supply quotas. The OPEC has already cut supply by 1.2 million bpd. OPEC has also hinted that the 6-month supply pact may be extended beyond June. OPEC estimates that non-OPEC members may create a glut of an additional 2.4 million bpd. That is the reason; most experts are anticipating that oil may remain range-bound in a narrow range as the forces of demand and supply try to get into equilibrium mode. The US shale supply is already at a record level of over 12 million bpd and the US is now the largest producer of oil followed by Russia and Saudi Arabia.

There could be finally a turnaround in the fortunes of PSU banks in the next 2 years; believes ICRA. According to ICRA PSU Banks were likely to post profits of Rs.23,000 to Rs.37,000 crore in FY20. The ICRA report expects the turnaround in PSU bank performance to come on the back of sharp improvement in the NPA situation. In fact, ICRA expects the gross NPAs to fall to 8.1% by March 2020 even as the net NPAs were likely to reduce to just about 3.5%. The improved capital adequacy will also spur the PSU banks to get aggressive on credit expansion to boost profits. That holds the key.

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