Over the previous week, we witnessed two shades of the Dollar/Rupee market. Going into the Union Budget, the local unit appreciated towards 59.57 levels on spot, but the day the Budget was announced we saw a huge U-turn in the market, as Rupee depreciated towards 60.20 levels. On last Friday, as domestic equity lost some more ground, the pair pushed towards 60.30 levels, but closed the week around 59.93 levels on spot.
Importers and oil marketing companies generally came on the bid in the US Dollar below 59.70/60 levels but FIIs, through their custodian banks, have been to happy to purchase the Rupee below 60.10 handle. At the same time, central bank has become a much active player on the market, intervening on either end of the trend. As a result, volatility has become compressed in USD/INR. In fact, volatility has also reached historical lows in many major currency pairs in the world, thanks to economic interventionist policies of major central banks in the developed world.
India's industrial output in month of May grew at 4.7% v/s 3.4% rise in seen in April and 2.5% fall seen in May of last year. IIP was at the highest levels since October of last year. Manufacturing growth picked up from 2.6% in April to 2.7% in May, lead by 4.5% surge in capital goods output. We are banking on a gradual recovery in the industrial sectors of the economy in the coming quarters.
India's new finance minister tabled his maiden Budget and considering the fact that he has been in office for less than two months, most of the lack of specifics can be given a benefit of doubt. Intent was clear, that fiscal consolidation remains a priority and also capital augmentation is the need of the hour. The new finance minister has announced a slew of schemes, mostly to honour the pre-poll commitments of his political party. There was significant emphasis on the public-private partnership model of development. However, the current structure of PPP framework has been a non-starter and hence we expect an overall in the same. Though the Union Budget was not groundbreaking but it was at least not overly populist. There was a gross acceptance of the accounting window dressing that was done by the previous government. Within the limited fiscal headroom, GOI has tried to offer whatever little tax benefits can be given to individuals and businesses. He has also