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19 April 2021
Indian rupee could find weakness amid rising inflation, import and COVID
The Local unit opened at 74.80 after closing the last week at 74.35 against the US dollar. The INR started on a weaker note against the US dollar after another surge in coron avirus infections over the weekend increased the risk of more broad-based lockdowns.
The rupee has dropped about 3% to 75.14 per dollar since the start of April, the worst performance among a basket of two dozen emerging market peers tracked by Bloomberg.
The currency’s fall came amid a surge in Covid-19 cases that has overwhelmed India’s health systems and stoked public outrage as the government struggles with sufficient vaccine supplies. It will also likely compound corporate India’s financial woes and complicate the central bank’s plans to use monetary stimulus to soften the economic blow.
The country reported more than 260,000 Covid-19 cases on Saturday, higher than anywhere else globally, and almost 1,500 deaths. Rising cases have resulted in a series of lockdowns and curfews, which analysts fear will upset what was expected to be a robust business and economic recovery from last year’s contraction.
On account of it, going ahead corporate earnings forecasts may be downgraded in the coming months and foreign portfolio flows may suffer. Foreign investors have ditched Indian assets on concerns of the country’s growth prospects, selling more than Rs 40bn of equities in April, marking the first such net outflows since September.
Wholesale price inflation (WPI), shot up to 7.4% in March 2021 from 4.2% in February 2021. This is the highest inflation at the wholesale level witnessed in the last eight years. Inflation in the manufactured products group rose to 7.3% in March 2021 from 5.8% in February 2021. Inflation in primary article prices rose to 6.4% from 1.8% and that in power and fuel prices increased to 10.3% from 0.6%
India's merchandise exports rose year-on-year (YoY) by 60.3% to $34.5 billion in March 2021, as per the revised estimates of foreign trade released by the Directorate General of Commercial Intelligence & Statistics (DGCI&S). The growth came after a steep 34.3% fall registered by exports in March 2020. India's merchandise imports grew YoY by 53.7% to $48.4 billion in March 2021, after falling by 32.9% in March 2020.
The U.S. economy roared back to life in March and early April. Retail sales, the most anticipated piece of U.S. data this week blew expectations as stimulus checks and vaccinations fueled robust demand. Consumer spending jumped 9.8 percent in the month of March, easily outpacing the market’s 5.9% forecast.
This was the strongest increase since May of last year. Gas and auto sales contributed to the rise but spending ex autos still rose 8.4 percent. Jobless claims also dropped almost 200K to 576K the lowest weekly reading since the pandemic began as restaurants, retailers and other businesses rehire.
Manufacturing activity is improving as well with the Empire State index rising to 26.3 from 17.4. These overwhelming positive reports drove stocks to fresh record highs and should have driven the greenback upwards but there were very few buyers. Instead, the dollar followed Treasury yields lower.
With the unexpectedly large drop in jobless claims, sharp rebound in spending and strong rise in the Empire State survey, the market believes that the Federal Reserve will have to reevaluate its plans to keep interest rates steady until 2023. U.S. policymakers made it clear that substantial progress needs to be made in the underlying data and not their forecasts for them to start reducing stimulus and there’s a very good chance that with 38 percent of the population receiving at least one dose of the COVID-19 vaccine, some of those goal posts will be met this summer.
All of this should be positive for the U.S. dollar but the greenback and Treasury yields failed to rise and there are a few reasons why this is happening. First, good data could have been discounted by the market – everyone has been talking about a strong March/April recovery and the numbers confirmed exactly what they were hoping. Secondly, a large part of the boost in spending was driven by the stimulus check which will last at most for another month. Third, there’s little evidence that inflation is getting out of hand. This week, Federal Reserve Chairman Powell made it clear that even though he’s optimistic on the economy, the rise in inflation as transitory. Lastly, Treasury prices fell sharply in the first quarter and there are signs of asset managers taking advantage of the move to buy Treasuries which drives yields lower.
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a) The newsletter is available by Saturday Evening with a weekly perspective .The updates on trades given in the letter shall be available by Wednesday evening.
b) Views on Equity ,Currency and Commodity are covered with suitable recommendations.
c) The entry/stop/targets levels for trade ideas shall be mentioned.
d) Trades are evaluated based on their performance for the week in which recommended. Carry forward of the trade is at the sole discretion of the subscriber.
Bank Nifty: Buoyed by all-round participation
Bank Nifty: Buoyed by all-round participation
The bullish bias never deserted the market , it just went undercover to resurface quite strongly last week. The resumption of the uptrend has brought the docile sector Bank Nifty back into the limelight. After the strong surge in Bank Nifty on the day of the election results way back on May 16 a clear trend could not emerge unlike the Nifty or CNX IT. Despite several attempts the trend slipped into some congestion till last week it managed to shrug the old self and reclaim some lost ground. Nifty had been moving steadily higher but was unable to really show some aggression till it received strong support from all key sectors to positively close above 7900.
The momentum in Nifty is holding steady and is now heading higher beyond 8000 in the coming week. Higher levels attract volatility and with a short week as well as an expiry unfolding this week one can expect markets to witness some robust action. Nifty trades can be pursued at current levels and on decline towards 7875 keeping 7850 as the stop as we step into the week. The market continues to reward a buy on decline approach and hence one should continue to participate in this manner. Bank Nifty offers more room for a trade and in comparison is better placed to move higher and should be considered for a move towards 16100 in the coming week .One could initiate a position in this trade with a stop below 16700.
SECTOR IN DEMAND : BANKING and FINANCIALS
Banks and interest rate sensitive counters will be the beneficiary of the surprise move seen in banking. With the Finance ministry approving a draft for creation of a holding structure for state run banks for their long term capital needs the PSU banks are in demand. With the trends just emerged in this sector one can expect that the momentum shall sustain this week too. SBI and PNB have witnessed some robust volumes amongst the Public Sector Banks while Kotak and HDFC Bank have seen a fair bit of traction amongst the Private Sector. With some cheer spreading to this sector the financial counters too saw some demand picking up.
With bullish momentum play and all declines witnessing steady buying action the stocks are witnessing some robust action. Adopting a mix of breakout and support buy strategy some stocks have been selected for the forthcoming week with a trading mindset.
HAVELLS Cmp 1262.45
After a sharp upthrust few days back this counter did not really continue the trend , however the steady consolidation at higher levels suggests that there is strong possibility of the prices rising higher. The momentum too is not showing any signs of weakness hence we can initiate a buying opportunity above 1270 with a stop below 1250 for a rise towards 1300 in the coming week .
ADANI ENTERPRISES Cmp 504.50
The bullish bias in this setup does not seem to recede. After a strong pullback the strong buying interest emerged at lower levels thereby pushing the prices to test the value area around 510. The daily chart attached show that the value area resistance is being tested. With a bullish sentiment in progress one should watch out for this resistance to be broken which would present a buying opportunity above 510 with a stop below 500 for a rise to 525.
TECH MAHINDRA Cmp 2307.50
CNX IT at a new high and one of its top performing counters TECHM witnessed its best performing week as can be seen from the weekly chart attached. The sharp rise above its previous lackluster weeks suggest that the trend in this counter is getting set for some strong upside . The RSI too has inched up above 70 suggesting that the bullish momentum has gathered pace. Look to go long above 2310 and on decline towards 2275 maintaining a stop below 2250 for arise towards 2375.
SBI Cmp 2522.50
Banks have finally struck a chord and have begun to warm up.With the renewed enthusiasm in PSU banks this PSU banking major seems to be witnessing some strong participation. The long term trensdline support fuelled with the overall bullish sentiment makes this counter a strong banking contender for this week. Look to go long above 2530 and on declines bnear 2490 with a stop below 2460 for a rise to 2650 in the coming days.
The sudden emergence of some trended action in the Commodities space has generated some interest across all counters. The active movement in the global counterparts has also fueled suddenly seems to have produced some trended action.
COPPER : Signs of reversal
Chinese PMI dipped to a 3 month low in August and being a major player in Metals one would have expected the repercussions to take effect on the prices. However the news was totally ignored as prices managed to reclaim the gap region highlighted in the chart below to stage a breakout. The momentum too seems to have revived and with the expiry coming up this week one can expect some rollover action to take place thereby producing some volatility in this commodity. A sustained move above 430 would be an invitation to go long for a rise to 440. Any decline towards 425 levels can also be considered for adding to existing position with a stop below 420.
USDINR: At a tipping point
The measures taken by RBI combined with global decline in gold and oil prices helped the rupee stabilize leading to sharp appreciation in USDINR last week. This resulted in a positive impact on the equities markets as well thereby sustaining the bullish sentiment. On the daily time frame we observe that the prices have declined into the previous congestion area where we observe other sets of supports that could result in USDINR to rally. With intraday timeframes showing divergences one can expect an interim bounce in the coming week . The crucial point on the way down will be around 60.43 a breach of which could see some sharp declines towards 59.70 emerging. One could look to add to the existing short USDINR position if there is breach of the support levels mentioned with a sizeable decline in the offing.
Review of Recommended Trades
Buy above 7800 stop 7730 target 8000
Nifty traded higher to move towards our target and closed at 7930 where one could have booked some profits. Revise stop to 7850 for pending positions
Buy above 290 stop 284 target 301.
Metals saw some revival in trends leading to the targets being achieved.
Buy at current levels and on decline towards 442 with a stop below 438 for a rise to 464.
Sharp momentum in pharma helped this counter move much beyond our targets.
Sell below 2100 for a drop to 2030 .The stop on this position can be maintained above 2130.
This trade did not trigger as the supports managed to push this counter higher.
a short below 2470 with stop above 2505 target 2405.
As IT showed some signs of exhaustion last week this counter did move lower to about 2435 where one could have booked some profits.
Go short at current levels and on rally towards 5950 with a stop above 6000 for a drop towards 5650.
The sharp decline in Crude oil helped us achieve our targets.
Go short at current levels and on rally towards 422 with a stop above 425 for a drop towards 405.
The trade declined marginally and then rebounded triggering our stoploss indicated.
Sell below 60.70 with a stop above 61 for a drop to 60.
USDINR appreciated and went below levels indicated to close at 60.51. One can hold with a revised stop at 60.70
Trades that have moved beyond levels indicated and are in profitable position
Trades that have achieved the targets indicated
Trades that did not been initiated.
Trades that are near the initiation levels
Trades that triggered the stop indicated
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