Daily Market Commentary: Monday, October 8, 2012

Domestic and International Highlights:

The Indian Rupee opened weaker at 51.95 levels after closing at 51.85 levels on Friday. The Intraday range for the rupee is seen between 51.95-52.40 levels. The Indian Rupee closed at six month highs on the back of improved sentiments on the economy. The Indian cabinet approved the FDI in insurance & pension bills on October 4 to attract foreign investment.

The bills would allow foreign investors to increase their stakes in insurance companies and the pension sector to 49%. Currently, foreign investors are barred from the pension business, and the cap for insurers is at 26%.

The Asian markets are trading mixed ahead of the European finance ministers meeting today aimed at easing the region's debt crisis. The better than expected US unemployment rate number for September 2012 failed to spur a rally in US equities. The S&P 500 gave up all gains seen post the release of the unemployment data to close marginally negative.

Last week was all about an improvement in risk appetite that is best seen through the Dow Jones Industrial Average, which climbed to a new 4 year high. The EUR/USD's rallying above 1.30 levels. The ECB indicated that it is ready to commence bond purchases but Spain has not yet asked for a second bailout and markets are still nervous on how the country's debt issues will unfold. On the other side, according to Prime Minister Samaras, Greece is running out of time and will be bankrupt by the end of November if they do not receive international aid.

The Greece will continue talks with international lenders this week on new austerity measures to clinch its next loan tranche. Europe isn't finished discussing its policy response to the crisis, there is a lot more to be done. There would be some hurdles by countries like Spain and Italy to extract the best bailout terms. That would further impact the global markets.

The Liquidity as measured by bids for Repo in the LAF (Liquidity Adjustment Facility) auction of the RBI eased last week on the back of government spending and release of end September funds by the banks. The Bids for repo averaged Rs 36,000 crores on a daily basis against an average of Rs 72,000 crores. The government auctioned Rs 13,000 crores of bonds last week. The government is scheduled to auction Rs 13,000 crores of bonds this week.

Outlook: Rupee appreciating below 51.80 levels will give further room to rupee's strength, otherwise we can say a temporary bottom is made at 51.37 levels. Exporter's Fresh bookings should be done on long term with good premiums. This strategy will protect you from any immediate reversal or short term rupee weakness which can be converted on spot. Importers can start covering for the month of October.

(Source: Corporate Communications Team, India Forex Advisors Pvt. Ltd.)