As of now the only concern for our domestic currency is boiling crude oil prices and current account deficit (CAD). But in recent scenario the main focus will be on election results.
With the Lok Sabha election results around the corner, high volatility will not be ruled out and traders need to adopt a cautious approach.
India Volatility Index (VIX) is considered to be highly risky for the traders if it crosses the 25 level. Currently it is trading at 28.1. Therefore, we need to be prepared for much more volatility as we move towards the results.
During the 2014 election results, VIX had touched the 39.3 level and in 2009 traders faced even higher volatile condition and volatility index had propelled to the level of 83.
Considering the above scenario, for trades, we believe that shifting to currency would be a much safer and prudent idea.
The market moves on sentiments to some extent and reacts negatively to any major change. Traders need to keep in mind that if the current government continues to be in power then it would result in a sudden appreciation of Indian Rupee (INR) against all major currencies, especially US Dollar (USD), because of high crude oil prices and widening current account deficit (CAD).
On the contrary, any change in governance in India will adversely affect the INR and the carnage, in that case, could be much more severe, as the rupee would depreciate more rapidly.
Though the volatility cannot be ignored in the currency as well, the quantum of move is to be lower as compared to equity and considering the risk-reward is much safer for moderate risk traders in the recent scenario.
Comparison of move in Nifty as compared to USD/INR during/after election result (3-8 trading sessions)
As of now, the only concern for our domestic currency is boiling crude oil prices and CAD. But in the recent scenario, the main focus will be on election results. The re-election of the current party is likely to have a positive impact on the Indian Rupee, and traders can take advantage of the situation with lower risk as compared to equity.
Technical structures that suggest the INR could appreciate against USD as USD-INR future contracts are trading with lower top and lower bottom series from the last few trading sessions and prices are resisting at falling trend line.
As per pattern INR could appreciate till the level of 69.1 and 68.47 on any positive news inflow. Major hurdle on downside is 200 Day Moving Average, i.e 71.
The author is Senior Research Analyst at Rudra Shares & Stock Brokers.Disclaimer: Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.