On the day FM P. Chidambaram's presented his Budget 2014, though Indian rupee gained around 7/8 paise, against the US dollar, but over the course of day it traded in a see-saw trend. During the first half, a risk-on mood in domestic equity markets and also in the Asian currencies, pushed Dollar/Rupee lower towards 61.85/86 levels, only to recover towards 62.10, as trading drew to a close. However, late selling from exporters and FIIs pushed the pair back down towards 62.85/86 levels by close of trading.
All throughout the day, importers and exporters were seen active as sub-62 levels kept the 2/3 month hedging demand alive from both the quarters.
Vote of account was expected to be a non-event but traders kept a close on the fiscal math. FM announced excide duty reduction for the auto mobile sector, which cheered the equity markets. Though FM has aimed for a 4.1% GFD in FY15 after a 4.6% GFD in FY14, we believe it is optimistic. Unless growth picks up over the next 8/9 months, GFD can be higher, as a chunk of expenditure has been rolled over to next year. At the same time, if economy fails to pick up steam after national elections, GOI might face a recapitalisation bill from PSU banking sector, which can spoil the fiscal math furtther. Therefore, there are number of ifs and buts,before one can be confident of the GFD numbers for the next year.
Tomorrow, we can expect a positive start for the Rupee, as bunched up inflows can occur, which can push the Rupee towards 61.30/70 levels on spot. USD./INR is expected to find strong support between 61.30/61.70 levels, which if holds, can trigger a short covering recovery towards 62.10/30 levels. However, on a valid break below 61.30, Rupee can aim for 60.90/60.60 levels.
By Anindya Banerjee, analyst, Kotak Securities