Rupee hits record low of 80 to a dollar as global equity slump hammers currencies

The rupee breached the 80-to-a-dollar mark to hit a fresh record low while bond yields climbed 6 basis points, tracking a fall in global equities on the back of the Federal Reserve’s hawkish rhetoric at Jackson Hole.

At 9.30am, the home currency was trading at 80.03 against the US dollar, down 0.25 percent from its previous close. The rupee opened at 80.07 and touched a record low of 80.13 a dollar.

The 10-year bond yields increased 6.27 percent from its previous close of 6.21 percent. Bond yield and prices move in opposite directions.

Among Asian currencies, South Korean won declined 1.3 percent, Thai Baht lost 0.8 percent, Japanese yen 0.64 percent, China Renminbi 0.6 percent, Taiwan dollar 0.6 percent, Malaysian ringgit 0.5 percent, Indonesian rupia 0.43 percent, Singapore dollar 0.34 percent.

US Fed Chair Powell reiterated the central bank’s unconditional commitment to tackle inflation, besides highlighting risks posed by elevated and extended periods of high price growth. In reaction, rate-sensitive short-end and 10-year yields adjusted up, whilst stocks sold off sharply.

We expect a recession to start in Q4 2022, but increasingly entrenched inflation will likely result in continued Fed tightening through February before cuts in Q3 2023," it added.

Powell in his address last week at the Fed’s Jackson Hole symposium flagged the likely need for restrictive monetary policy for some time to curb high inflation and cautioned against loosening monetary conditions prematurely.

"USDINR is on a strong wicket, with such a positive USD backdrop. A strong US Dollar Index, high US bond yields with a deeply inverted yield curve and weak equity markets all make it challenging for FPI and carry trade flows in EMs. However, the speed of the up move will be closely regulated by RBI. RBI has twin objectives of not letting the Rupee become a weak outlier and also, they do not want the USDINR to become too volatile" said Anindya Banerjee, VP, Currency Derivatives & Interest Rate Derivatives at Kotak Securities.

"This means they may continue to sell USD as the spot and forwards moves to a fresh all-time high. However, this may not alter the trajectory of the pair and the path of least resistance would remain upward," Banerjee said.

He expects the rupee to be in a range of 79.70 and 80.50 over the next one-two weeks.

MUST READ ARTICLE

 you can buy everything when you invest in good company and create wealth. All credit to him as I was a novice, God was kind, I got an allotment in the IPO.

That allotment today has compounded at around 30 percent since last 27 years. I have practically experienced this eighth wonder of the world, courtesy my dad, who is my inspiration in life & investments.

The patience, discipline & conviction that he brings to the proceedings is what I have learnt and am applying it religiously to my job of managing money for investors.

I am also an ardent Warren Buffet fan. The word durable competitive advantage has stayed with me forever. I study & practise behavioural finance extensively which helps me to tide over the difficult phases in markets.

FIIs have also joined back which is giving further legs to the party on D-Street. Is it FOMO or attractive growth outlook which pushed FIIs back towards Indian markets?
Right from the Russia-Ukraine war to rising inflation, to rising interest rates to crude & commodities hurting our economy & Companies, we saw it all.

All these global factors led to a severe round of FII selling amounting to nearly a historic 33b$ in the last 9 months.

Current financial market turmoil is a fund flow issue due to external shocks like financial tightening in advanced economies and war led disruptions. All these pushed FII ownership in Indian equities to a low of ~18% (close to a 5-yr low).

At some point, earlier than later, the valuations started to look attractive. While inflation & interest rates can still come & haunt the economies & markets, but a confluence of factors including low valuations, oversold markets, the fall in commodity prices etc helped markets to move northwards.

As the selling was ruthless, so was the buying and hence the rally which makes it look like a combination of strong growth prospects of India along with not missing the bus.

What about valuations? How are we placed when compared to other EM countries?
The valuations at 15200 -15500 levels of Nifty were very attractive for Indian markets. Be it P/E of 15.2 (FY24 consensus EPS of 1000 for Nifty), Price to Book Value or Market Cap/GDP.

After the recent rally, valuations have of course risen, but the quality & quantity of earnings growth will now come to the fore.

There is a strong demand scenario along with much elusive capex plus a number of tailwinds in the form of lower commodity prices along with crude returning to sub three figure mark.

The input cost pressure seems to have come down than what was expected a quarter earlier. Along with that, strong pricing power was exhibited by most of India Inc during these tough times, which augur well for these companies & their investors.

There has been a consistent under performance along with de-rating for Chinese economy & markets over the recent past.

China plus one along with a definitive shift towards world recognising India’s strengths, manufacturing boost, political stability, reform intent & policy continuity make India command some premium in the emergingmarketbasket.

What is your view on telecom and allied stocks after the recent spectrum allocation?
Telecom sector is the lifeline or the backbone of the digital economy that the government is trying to make. The DoT is already working on more relief measures that would ensure that there is an ease in conducting business for the telcos.

There is a likelihood of pricing power coming back to the sector as price hikes seem to be not as tough as in the earlier scenario & average revenue per user (ARPU) levels is expected to go up further.

With 5G arriving soon and the demand for wireless connectivity services going up both in the retail as well as enterprise space, there's likely going to be a boom in the revenues for the operators.

While the telcos are going to roll out new networks and then products and services related to it, their debt level is also going to go up.

It won't hurt the two major players a lot because both of these companies can deleverage pretty fast. There are several infrastructure and tech companies as well which are directly involved in the telecom sector. One has to be very selective here as the sector is highly capitalintensive.

Domestic themes have done well if we look at the sectors which participated in the rally from 50,000-60,000. Do you see the trend in favour of economy favouring sectors to drive the next leg of the rally?
We remain optimistic on the upcoming festival season and good monsoon-led rural demand. On the sectoral front, BFSI looks slated for high growth for the next few years. Banks & NBFCs can be beneficiaries of high credit growth, capex & economic recovery.

Insurance on the back of improving penetration & density plus coming out of pressure pf pandemic claims and Intermediaries like exchanges, depositories will benefit from the huge wave of growing financial & equity cult.

Apart from discretionary & non-discretionary consumption space, capex beneficiaries like cement, capital goods, automation, technology etc. and also Agro & Specialty Chemicals should find its way in investor portfolios.

Building materials or home improvement has been our favourite since some time & we continue to stay positive here.

From 52-week low in June the trend reversed in quick time. What would you advise investors to do at current levels? Top up existing MFs, buy stocks which are trading at fair value or lighten up positions?
We are always advocates of Time in the markets is more important than timing the market. History has proven that your return reduces drastically in the longer term, if you miss out few best days in the market.

There is always a denial in terms of the longevity & the texture of rally after such a large fall & people call it a relief rally or bounce back. But more often than not, it turns out to be the resumption of bull run.

However, due to increasing number of moving parts, the safest strategy is to invest in tranches so as to benefit from volatility. One should continue to invest gradually be it MFs or good businesses.

We continue to like our approach of buying market leaders & emerging market leaders, which create & multiply wealth in the longer term.

In our recent revisit to substantiate our views, we found that these companies have improved their return ratios, gained market share in difficult environment, have generated superior returns in the past few cycles & are also expected to post high earnings growth over the next two to three years.

One should invest in such companies and create a portfolio which will stand the test of time & difficult circumstances in the market.

The broader market is still far away from its peak. Does it make sense to catch the fallen knife? If market rebounds, there are higher chances of some activity in the small & midcaps as well?
More than the market correction, it was stock prices which corrected by 15-50 percent across the board for mid & small caps. In this environment of high inflation & interest rates, as bottom-up stock pickers we look at companies with dominant market share & high level of corporate governance standards, huge opportunity size in their respective sector along with margin of safety.

We feel that rather than focusing on the market cap, one needs to focus on whether the company is a sector leader and have qualities which of superior return profile, moat & the business model which is either disruptive or can’t get easily disrupted.

There are a good number of mid & smallcaps which would create wealth over the long term but will bring in a fair share of volatility in the interim. The trick here is to not get carried away by hearsay & tips, but to do one’s due diligence or consult a professional and then invest one’s hard earned money.

Will EV turn out to be a decadal theme? Companies associated with manufacturing of EV vehicles could see some strong price action. What are your views?
Unfortunately, there are not many listed plays so far to play this theme. With time, a lot more choice will be available here. Yes, there are now automakers who derive a part of their revenue from this stream.

I think the beneficiaries here will be companies that operate in allied industries & also companies laying down the infrastructure for the implementation of the Electric Vehicle revolution.

 

Upside risks to inflation remain, says RBI Deputy Governor Michael Patra

The Indian central bank has increased the policy rate by 140 basis points in the last three-and-a-half months, although it thinks inflation peaked in April

 

AUGUST 26, 2022 

Upside risks to Indian inflation still remain even as it has declined from its peak, according to Michael Patra, a deputy governor of the Reserve Bank of India (RBI).

“Although it (inflation) appears to be moderating from its peak of 7.8 percent in April this year, we would prefer to await more incoming data before we are convinced that this a durable trend,” Patra said in a speech on August 24.

While some easing of international commodity prices and supply chain pressures, both globally and domestically, are positive developments, upside risks remain in the form of potential second order effects and the transmission of input cost pressures to the sticky core component of inflation,” he added.

Patra delivered the speech at the SAARCFINANCE Seminar in New Delhi earlier this week. The speech was made public by the RBI on August 26.

India’s headline retail inflation rate, as measured by the Consumer Price Index (CPI), fell to 6.71 percent in July. Inflation had jumped to a near-eight-year high of 7.79 percent in April following a surge in global commodity prices after Russia invaded Ukraine in late February.

While CPI inflation in July was the lowest in five months, it has been above the RBI’s medium-term target of 4 percent for 34 consecutive months and spent seven straight months outside the central bank’s 2-6 percent tolerance range.

In the near-term, Patra said on August 24, India’s inflation trajectory is “heavily” dependent on geopolitical and global financial market developments and international commodity prices.

As per the RBI’s forecasts, CPI inflation is expected to average 7.1 percent in July-September, 6.4 percent in October-December, 5.8 percent in January-March 2023, and 5 percent in April-June 2023.

The deputy governor’s comments come after RBI Governor Shaktikanta Das told television channel ETNow on August 23 that inflation had peaked at 7.8 percent and the central bank wanted to bring inflation closer to its 4 percent target over a two-year period.

 

Oil is Not Well with High Inflation Rates; Why India’s Situation is Far from Okay

Both US and UK are witnessing high inflation levels. India, too, is fighting its own troubles. According to RBI, the challenge is to guide inflation to pre-targeted 4%. However, that would be far from easy. This is due to the intense pressure of imported inflation, that is, rising crude oil prices that sits heavily on the domestic rate

At present, at 10.1%, the UK is witnessing its highest inflation levels in the last 40 years. Worse, it is expected to touch 13%, further causing costs of living to soar dangerously out of control.

The US is also unsuccessfully battling an “unacceptably high" inflation rate that despite slowing significantly, is still far from being tame. The country’s inflation rate touched 8.5% in July, rising from just 4.7% in 2021.

India, too, is fighting its own troubles with inflation. According to the August 2022 bulletin published by RBI on August 19, the challenge is to guide inflation to the pre-targeted 4%. However, that would be far from easy. This is due to the intense pressure of imported inflation, that is, rising crude oil prices that sits heavily on the domestic rate.

High crude oil prices generally dampen global trade sentiment. Given that oil is essential and intrinsic to most goods and services we consume on a daily basis, skyrocketing crude oil prices cause the overall cost of living to soar, intensely pressuring the common man’s pocket. However, crude oil prices are expected to improve as global pressures and the impact of geo-political tensions soften in the months to come.

As CA Manish Gupta explains, “If inflation goes up, the regular salaried man suffers the most. That’s because companies tackle inflationary pressure by passing it on to consumers. Prices go up, with no commensurate increase in their purchasing power, thereby taking up bigger than the usual share of income."

Is India better off?

The data released by the National Statistical Office (NSO) in August notes the muting rate of inflation in India. The country’s consumer price index (CPI) eased to 6.7% in July from 7% in June 2022. A recent study by Kotak Economic Research pins retail price inflation at 6.5% for the year 2022-23.

However, according to RBI governor Shaktikanta Das, while the worse is behind us, the situation is far from okay. Inflation levels in July eased by 30 basis points as compared to June, and a massive 60 basis points from the 7.3% average for Q1 2022-23.

“On the domestic front, though inflation has moderated and plateaued since its recent peaking in April 2022, it remains unacceptably and uncomfortably high," noted the RBI bulletin.

Nifty fairly valued at 17,000-18,000; near Rs 1,000 EPS likely in FY24......

 Nifty fairly valued at 17,000-18,000; near Rs 1,000 EPS likely in FY24......

 When it comes to equity markets, there is always some reason to worry because there’s always something or other which might move in a direction that might not comfort investors. Today it is the dollar index, tomorrow will be oil, the day after it will be something else. Having said that, from a broader perspective, earnings growth has been pretty good in the quarter gone by and in the next couple of months, we will get into the first normal festival season after two years.

I still firmly believe that a lot of pent up demand exists in the economy and amongst consumers and businesses and as a result, the second half probably should be very strong or resilient in terms of growth. Now when you tie this into the market and given the fact that markets tend to discount 12 months forward earnings, India is a market which probably at Nifty level will do something close to Rs 1000 of EPS in FY24.

So at about 17,000-18,000, there is pretty much a fair valuation for the Nifty index and it is very much in line with where Indian markets have traded on an average for the last 15 years. I think the market has reached a zone where it's very fairly valued give or take 5% on either side. The market could remain range-bound at the index level for some time to come and will have stock specific and sector specific moves.

In the past two months, we have seen the Nifty go up close to 2,500 points but from a valuation perspective, the Nifty PE has moved about 3 points or 3 multiples from roughly about 18-18.5 to 20-21.5. Now the 3 times or 3 multiple movement in the valuation tells me that unlike the Nifty move which was pretty sharp, the valuation uptick not been that sharp partly because Q1 results were factored in and therefore, when we moved our estimates forward, valuations looked a tad bit better.

 

ICICI Bank hikes fixed deposit interest rates on tenures of 1 to 10 years

ICICI Bank Latest FD Rates

The bank will continue to give an interest rate of 2.75% on fixed deposits maturing in 7 days to 29 days, and ICICI Bank will continue to offer an interest rate of 3.25% on fixed deposits maturing in 30 days to 90 days. Fixed deposits with maturities between 91 days and 184 days will continue to pay 3.75% interest, and term deposits with maturities between 185 days and less than a year will continue to pay 4.65% interest. The interest rate on fixed deposits maturing in one to two years has increased by 15 basis points (bps) from 5.35% to 5.50% at ICICI Bank.

The bank increased interest rates on fixed deposits maturing in 2 years, 1 day to 3 years by 10 basis points, from 5.50% to 5.60%. ICICI Bank increased interest rates on fixed deposits maturing in 3 years, 1 day to 5 years by 40 basis points, from 5.70% to 6.10%. Fixed deposits maturing in 5 years, 1 day to 10 years will now earn interest at a rate of 5.90%, up from 5.75% previously, a 15 basis point increase. ICICI Bank increased interest rates on 5-year tax-saving fixed deposits by 40 basis points (bps), from 5.70% to 6.10%.

ICICI Bank Latest FD Rates

Click on the image to enlarge

“These revised Fixed Deposit interest rates will be applicable for new ICICI Bank Fixed Deposits and renewal of existing Term Deposits," said ICICI Bank on its website.

Senior citizens Senior citizens will continue to get an additional rate of 0.50% over and above the regular rate on fixed deposits maturing in 7 days to 5 years. And on ICICI Bank Golden Years FD which comes with a tenure of 5 years 1 day, up to 10 years, senior citizens will get an additional interest rate of 0.20% over and above the existing additional benefit of 50 bps. For older adults, this special interest rate is available for a short time only. According to the lender's website, the ICICI Bank Golden Years FD is valid until October 7, 2022.

ICICI Bank has mentioned on its website that “Now you can invest in ICICI Bank’s Fixed Deposits through the digital and branch channel for a fixed tenure, as per your convenience. You can multiply your savings with high FD interest rates through an ICICI Bank FD."

 

Retail Inflation 'unacceptably and uncomfortably' high: RBI Governor at MPC

Das, according to the minutes of the MPC meeting released on Friday, said retail inflation was "unacceptably and uncomfortably" high, as he along with other members proposed a 50 basis points hike.

August 19 2022 20:27 IST

With the price situation remaining at "unacceptably and uncomfortably" high level, members of the RBI's Monetary Policy Committee underlined the need for preventing upward drift of inflation and bringing it down to the target band, as per minutes of its recent policy meeting.

Reserve Bank Governor Shaktikanta Das said the policy actions of the central bank "would continue to be calibrated, measured and nimble depending upon the unfolding dynamics of inflation and economic activity."

Das, according to the minutes of the MPC meeting released on Friday, said retail inflation was "unacceptably and uncomfortably" high, as he along with other members proposed a 50 basis points hike in repo rate at the last policy review with a view to preventing its upward drift from the target.

The MPC at its meeting from August 3 to 5 had decided to increase the benchmark lending rate by 50 basis points to 5.40 per cent.

The sequence of policy measures, Das said, "is expected to strengthen monetary policy credibility and anchor inflation expectations. Our actions would continue to be calibrated, measured and nimble depending upon the unfolding dynamics of inflation and economic activity."

Frontloading of monetary policy actions, opined RBI Deputy Governor Michael Debabrata Patra, "can keep inflation expectations firmly anchored, re-align inflation with the target and reduce the medium-term growth sacrifice as it is timed into the recovery underway."

MPC has been tasked by the government to ensure that Consumer Price Index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on either side.

The CPI inflation was at 7.01 per cent in June and eased to 6.71 per cent in July. The data for August is scheduled to be released by the National Statistical Office (NSO) on September 12.

Governor Das further said the RBI's measures are tailored towards first bringing the CPI inflation within the target band and then taking it close to the target of 4 per cent over the medium term, while supporting growth.

"We will continue with 'whatever it takes' approach, given the new set of challenges and very high uncertainties that we are confronted with," he added.

Patra also stressed that at the current juncture, shocks are large and recurring. Combined with the rebound in spending liberated from the pandemic, they carry the risk of un-anchoring inflation expectations, he opined.

On exchange rate, he said the elephant in the room is the unrelenting strength of the US dollar, which has risen by over 8.3 per cent since March 31, 2022.

The Deputy Governor noted that during the financial year 2022-23 (up to August 3), the Indian rupee has fallen by 3.9 per cent against the US dollar -- 4.4 percentage points less than the MSCI advanced economy currency index and 1.3 percentage points less than the MSCI EME currency index (5.1 per cent).

RBI Executive Director and MPC member Rajiv Ranjan said the risks to the global economy which were initially perceived as stagflationary are now increasingly surfacing to be that of an outright recession for most economies. This has fuelled a debate of hard versus soft landing for the global economy.

The MPC comprises three officials from the RBI and three nominated by the central government. The government-appointed members on the panel are -- Shashanka Bhide, Ashima Goyal and Jayanth R Varma.

Bhide, as per the minutes, opined that the global economic conditions have turned unfavourable for growth from the combined shocks of the breakout of the Russia-

Ukraine war, continued shadow of Covid-19 across countries and the tightening of monetary policies to rein in inflation in many countries.

"The worsening global economic conditions have come at a time for us when the domestic economy was beginning to sustain its growth momentum after regaining the output level in 2021-22 from the shocks of the Covid-19 pandemic," he said, while voting for a 50 basis points hike in repo rate.

He is Honorary Senior Advisor, National Council of Applied Economic Research, Delhi.

MPC member and Emeritus Professor, Indira Gandhi Institute of Development Research, Mumbai, Ashima Goyal said one of the first impacts of rising policy repo rates should be on credit demand as pass through raises loan rates. India is just coming out of a deleveraging cycle and recovery requires credit growth to rise.

"Despite rising repo rates in May and June 2022, yearly credit growth over the respective months in 2021 continues to be high partly due to the base effect," she pointed out.

Goyal said preliminary sectoral credit data shows sharp rise in bank loans to the service sector but average of MSME, NBFC and personal bank loans over May and June was less than in April, and loans to large industry fell in June.

"There are pitfalls in monthly comparisons and the picture will be clearer as more data comes in. The rise in loan rates is still limited but has begun," the member said.

Jayanth R Varma (Professor, Indian Institute of Management, Ahmedabad) said the logic of front-loading argues in favour of a 75 basis point hike.

This would establish the credibility of monetary policy beyond doubt, help achieve a faster reduction in the inflation rate, and hopefully reduce the terminal repo rate consistent with bringing inflation close to the target, he said.

"Weighing against that is the fact that a 75 basis point rate hike is quite unusual. In the context of market expectations of a 35-50 basis point hike, such a large hike risks being misinterpreted as a sign of panic, and could be unnecessarily disruptive," he added.

He too voted in favour of increasing the policy repo rate by 50 basis points.

10 year gsec

 

7.267%

19 Aug 2022

The India 10 Years Government Bond has a 7.267% yield 

SBI Hikes Fixed Deposit Interest Rates for These Tenors:

SBI Fixed Deposit Interest Rates Hiked: The country’s largest public sector bank, State Bank of India or SBI has hiked its fixed deposit interest rates for certain tenors. The new SBI FD rates have already come into effect from last week. The SBI fixed deposit interest rates are applicable on domestic term deposits of below Rs 2 crore. This comes as a result of the Reserve Bank of India increasing its repo rates by 50 basis points earlier in August.

The new SBI FD interest rates have come into effect from August 13, Saturday. The bank has hiked its FD rates by 15 basis points on deposits maturing between 180 days and 210 days from 4.40 per cent to 4.55 per cent for general public. The rates of other tenors have been kept unchanged by the bank. For deposits maturing between one year to less than two years, the SBI fixed deposit rate has also increased by 15 basis points to 5.45 per cent. For all other tenures, the SBI FD interest rates have also been hiked by 15 basis points

7 days to 45 days: For General Public - 2.90 per cent; For Senior Citizens - 3.40 per cent

46 days to 179 days: For General Public - 3.90 per cent; For Senior Citizens - 4.40 per cent

180 days to 210 days: For General Public - 4.55 per cent; For Senior Citizens - 5.05 per cent

211 Days to less than 1 year: For General Public - 4.60 per cent; For Senior Citizens - 5.10 per cent

1 year to less than 2 years: For General Public - 5.45 per cent; For Senior Citizens - 5.95 per cent

2 years to less than 3 years: For General Public - 5.50 per cent; For Senior Citizens - 6.00 per cent

3 years to less than 5 year: For General Public - 5.60 per cent; For Senior Citizens - 6.10 per cent

5 years to up to 10 years: For General Public - 5.65 per cent; For Senior Citizens - 6.15 per cent.

As the Reserve Bank of India continued to increase its repo rates during its August meeting of the Monetary Policy Committee, banks also followed suit and hiked their interest rates. This includes an increase in bank fixed deposit interest rates. SBI FD rates have increased in line with that of other banks. During its subsequent MPC meets, the RBI is further expected to raise its repo rates as retail inflation has remained over the central bank’s upper tolerance limit of 6 per cent, coming at 6.71 per cent in July despite a cool-off.

Investment Tips

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There's Always a Catch!

You have got to catch the vital points. You are investing in a future which is uncertain. You can not predict it beyond a point.

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Respect the Valuations

Never invest at unreasonable valuations. Never run for the companies which are in the limelight.

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Making Mistakes is Key

Make mistakes. Make a mistake that you can afford so that you live to make another one. But never repeat the same mistake.

nothing is Right or Wrong

What matters is how much money you made when you were right and how much you lost when you were wrong.

Never Borrow to Invest

Markets may remain irrational more than the rational being can remain solvent.

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Trading is Not For All

The by-heart trader used to say that not everyone can make money from trading. "Daddy khud cigarette peete the, magar hume mana karte the."