Indian Rupee remained locked in a tight range of 60.17/18 on spot and 60.32/33 levels. On one hand custodian banks, on behalf of their FII clients, continued to sell US Dollars. Inflows were noted both in debt as well as equity segments. Over the past two weeks, close 1.3-1.5 billion USD has flowed in but constant intervention from the central bank, either through state run banks or through oil marketing companies, has kept the pair bracketed. Over the week, there are no major events lined up from the domestic economy. Therefore, cues will appear either from the trend in equity and debt market or from the global risk appetite.
During the day there were comments from government officials that FII debt limit may be rejigged to allow for greater scope for foreign money into the debt markets. Currently, India allows FIIs of up to USD 30 billion in government bonds, including USD 20 billion for all and USD 10 billion for specific investors like foreign central banks, sovereign wealth funds, pension funds and insurance funds. There is a talk of tweaking the ratio to 25:5 from 20:10. As a result, we can expect a pickup in inflows once the tweaking occurs. However, MOF officials have indicated that overall FII investment limit in GOIsecs would not be hiked from USD 30 billion.
Over this week, traders need to keep an eye on the flash PMI data from France,Germany and US. Market is anticipating an improvement in the PM data in July. A better than expect number can continue to benefit the risk on mood in financial markets.
Technically, we expect a range of 59.70/60.00 and 60.45/60 on spot. With large OI build in the 60 strike July options, it appears that market seems to be playing a near about 60 expiry for the July series on the exchanges.
By Anindya Banerjee, Analyst, Kotak Securities