India Market Commentary
Comment of the Day

July 15 2013

Commentary by Eoin Treacy

India Market Commentary

Thanks to Ian McEvitt of the Himalayan Fund for this edition of his weekly commentary. Here is a section on recent Rupee weakness
Responding to the recent Rupee depreciation, even as it maintains its policy of non-intervention, the RBI did impose restrictions on banks' proprietary currency trading in the futures and options markets. SEBI weighed in as well, increasing the margin requirement for dollar-rupee forwards to 100%; the regulator also set new limits for open interest. Further, the RBI told oil marketing companies to purchase dollars for oil purchases directly from the central bank. It appears that following the recent depreciation, the government is contemplating the issue of foreign currency denominated sovereign bonds for the first time to underpin the reserves. The shipping ministry plans to deregulate port tariffs as an incentive to stimulate investment: such a move has had a dramatic effect on development of ports in other countries. Having failed to stimulate investment in multi-brand retail after nine months, the industry department is making moves to sweeten the FDI policy further. Meanwhile, policy clarification in the pharmaceutical sector appears to have worked: the Foreign Investment Promotion Board has cleared seven new proposals in the sector. It has held back one proposal which would involve ownership of critical domestic cancer drug production. Direct Benefit Transfer (DBT) for the LPG subsidy now has one million participants in 18 districts, who claimed $7mil in June. This has had the effect of reducing LPG demand by 3% on an annualised basis. The Uniform ID (Aadhar) programme now has 367million participants and is adding 15 to 20 million a month.

Eoin Treacy's view Over the last few months no currency fell faster against the Dollar than the Rupee, so it is comforting to see that some measures are being put in place to cushion the currency's decline. The Dollar's advance has at least paused in the region of INR60 and a clear upward dynamic would be required to question current scope for a further unwind of the short-term overbought condition.

In the last week of June, the Nifty Index found support near the May low and has since rebounded to test the psychological 6000 area. A rounding characteristic remains evident over the last two years which is generally consistent with accumulation. This suggests that in the absence of a sustained move below 5500, medium-term potential for additional upside can continue to be given the benefit of the doubt.

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