The inflation trajectory is projected to moderate sequentially beginning in the fourth quarter of the current fiscal year, Reserve Bank of India Governor Shaktikanta Das said on Saturday, while cautioning against risks posed by intensifying geopolitical crises and unforeseen weather events. Das said at a Peterson Institute for International Economics event in Mumbai that "the balance between inflation and growth is well-poised in India, and the Indian economy reflects a picture of stability and strength."
Top 3 Leads Today
- India's foreign exchange reserves drop $2.16 billion to $688.26 billion: Govt data.
- Economic think-tank NIPFP cuts India's FY25 GDP growth forecast to 6.9-7.1%.
- Need fair sovereign ratings for capital access: Sitharaman at IMF meeting.
Indian Markets
- Money Markets Minute: Last week, call rate rose for most trading sessions as liquidity reduced in the banking system due to ₹800 billion of goods and services tax outflow and no big, planned inflows. However, the call rate fell on Friday as banks’ demand for funds eased and ended at 5.95% for three-day loans compared to 6.65% on Thursday for one-day loans.
- Government Bond Brief: Yields remained stable for much of the week due to a lack of strong directional cues. On Friday, however, it closed the week marginally higher as a weekly auction added new debt supply, causing the yield to jump by 2 basis points. The benchmark 10-year 7.10%, 2034 government bond closed Friday at 6.84%, up from 6.82% on Thursday.
- Corporate Bond Beat: Yields had inched up by 3 to 4 basis points across the curve last week during first few sessions on the views that the RBI may not start rate cut cycle soon. Volumes in the secondary market for corporate papers remained muted as investors focused on new issuances by SBI, Power Grid Corp, and Indian Bank bond issues last week.
- Forex Flash: The Indian rupee sank further to a near-all-time low of 84.08 against the US dollar on Friday, as continuing foreign outflows from local stocks kept the currency under pressure, with major Indian market indices set for their fourth weekly decline in a row. The local currency fell to an all-time low of 84.0825 early last week but managed to prevent further losses thanks to the Reserve Bank of India's intervention.
- Stocks Spotlight: On Friday, Indian shares had their longest weekly loss since August 2023, exacerbating a broad selloff as foreign investors fled, and disappointing corporate profits weighed on morale. Last week, the NSE Nifty 50 plummeted 2.7%, while the BSE Sensex sank 2.2%, marking the fourth consecutive week of losses.
The Week Ahead
- Money Markets: The one-day call money rate may start the day around the RBI's repo rate of 6.50% on Monday. This is because banks will need money early in the day for reserve requirements. Traders expect that the call rate will trade in 6.00-6.60% range.
- Government Bonds: On Monday, government bond yields may follow the rise in US Treasury yields. Trade volumes are projected to be low this week, with Diwali on November 1 and traders on leave for the festival. The 10-year benchmark yield of 7.10% for the 2034 bond is expected to be 6.81-6.88% on Monday.
- Corporate Bonds: Yields are expected to remain steady, and volumes dull this week in the secondary market as most market participants would be on leave for Diwali festival. Traders will take more cues from US treasury and domestic government bond yields for further movement.
- Forex: On Monday, the rupee will likely open unchanged against the dollar. The rupee may take additional cues from crude oil prices and monitor further foreign money outflows. The rupee is expected to trade within the 84.00-84.09 range, on Monday. Traders believe the RBI is "making its intent clear" by routine interventions, and the rupee is unlikely to move out of the 84-84.15 band ahead of the US elections.
- Stocks: This week the stocks are likely to be volatile and investors will focus on corporate earnings. FPIs and DIIs will be keenly monitored by investors to evaluate their sentiment. Rising Middle East geopolitical tensions could affect energy prices and market stability. Investors expect market volatility after the November 5 U.S. presidential election, which might change fiscal, monetary, and foreign policy.
Events This Week
October 28, Monday:
- US Federal Reserve Board of governors closed meeting.
October 29, Tuesday:
- US Monthly house price index for August.
- US CCI for October.
- US Q3 Housing vacancies.
October 30, Wednesday:
- US Q3 Advance estimate GDP.
- US Pending home sales index for September.
- US Metropolitan area employment and unemployment for September.
- India Infrastructure output for September.
- India M3 Money supply for Oct 18 week.
October 31, Thursday:
- US Q3 Employment cost index.
- US Weekly export sales.
- US Unemployment insurance weekly claims report for Oct 26 week.
- US Agricultural prices for September.
- India Federal fiscal deficit for September.
- India RBI Monetary and credit information review.
- India Infrastructure output for September.
November 1, Friday:
- US Employment report for October.
- US Manufacturing PMI for October.
- US Construction spending for September.
- India NSE, BSE to conduct the Diwali Muhurat trading session at 1800 IST.
- India S&P Global Manufacturing PMI for October.
- India Bank Loan Growth for Oct 18 week.
- India Deposit growth for Oct 18 week.
- India FX Reserves for Oct 25 week.
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