Daily Market Commentary: Tuesday, July 31, 2012

Domestic and International Highlights:

The Indian rupee closed at 55.58 against the dollar weaker than its close of 55.33 levels on Friday. The Intraday range for the rupee is expected between 55.30-55.70 levels.

The Asian markets are trading slight positive as the market remains optimistic ahead of the FED and ECB meet scheduled for Thursday. The Japan's Manufacturing Purchasing Managers Index (PMI) was seen falling at its fastest in last one year as demand for Japanese goods slows in Europe and China.

The Indian growth is seen declining, as in a survey conducted by the Reserve Bank of India revised India's annual GDP growth estimate for FY13 to 6.5% from 7.2% earlier. Moreover, the average inflation outlook also has been revised upward to 7.3% for 2012-13.

The RBI will announce its first quarter monetary policy today. A majority of market participants does not expect any major policy action including change in policy rates. The RBI has asked the government to provide investment stimulus and take aggressive steps, like increasing petroleum prices to curtail subsidies as they are unable to provide any catalyst to stimulate the economy.

The higher rate of inflation makes it difficult for the Reserve Bank of India to take required policy actions. However, the improved liquidity and monetary conditions suggest the possibility of a slow recovery in industrial growth.

The Monetary and liquidity conditions have eased so far in 2012-13. The daily net borrowing by banks through RBI liquidity adjustment facility (LAF) has been in the range of Rs 40,000-50,000 crore in the last couple of months as against Rs 1 lakh crore on an average seen earlier.

The India bond yields rose to a near-three week high on Monday as investors cut positions a day before the central bank is widely expected to keep interest rates on hold. The benchmark 10-year bond yield closed at 8.15%, up 3 bps from its previous close and it’s highest since July 11.

Outlook:USD/INR maintains bullish bias for 3-4 months targeting 56 as first target . Importers still cover on dips like yesterday and exporters wait till 56 to cover.

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