INDIAN BANK
HO/INTERNATIONAL DIVISION
66 Rajaji Salai, Chennai - 600 001
Website : www.indian-bank.com
FOREX NEWSLETTER
(FORTNIGHTLY)

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(18/06/07 - 30/06/07)

News Items

Buoyed by a robust performance by the manufacturing sector, industrial output registered 13.6% year-on-year growth in April this year, compared to 9.9% rise in the same month last year. However, the pace of growth was lower than the upwardly revised 14.5% growth clocked by the Index of Industrial Production (IIP) in March 2007, according to data issued by the Central Statistical Organisation.

Manufacturing output, which accounts for 15% of the GDP and has 80% weightage in the IIP, rose 15.1% in April, compared to 11% earlier. The manufacturing sector growth - the second best in a decade after a 17.2% growth registered in November last year - was boosted by strong showing by the consumer non-durables sectors. Electriciy generation in April this year was up 8.7%.

The GDP of India, which is Asia’s third-largest economy, has expanded at an average of 8.6% in the past four years, recording 9.4% in 2006-07. The RBI has forecast 8.5% growth for the current fiscal. According to the data, of the 17 groups under the manufacturing index, 16 recorded growth in April 2007 compared to April 2006.The Wood and Wood Products, Furniture and Fixtures group showed the highest growth of 92.2% followed by Food Products (55%) and Machinery and Equipment other than Transport Equipment (19.2%).

The Indian equity market has outperformed the markets of both emerging and developed nations for the past 3 months, growing at 25.87 per cent, according to Standard and Poor’s May Global Stock Market Review. Other key emerging economies also grew during the past 3 months, posting average returns of 13.83%.

The Chinese market gained 16.82% while the Mexican stock market appreciated by 24.41%. South Africa saw its equity market rise 11.48%. However, May saw the Chinese and the Mexican markets post gains higher than the Indian market. Markets analysts opine that valuations of Indian stocks vis-à-vis Chinese stocks is still cheaper and thus may see higher inflows into India. The Indian markets showed good returns on account of improved performance of Indian corporates along with the appreciating rupee, which has led to higher inflows from foreign investors to the Indian economy.

Corporates have continued to show improvement in profits. Last quarter, they posted 35-40 per cent higher profits, which improved the market sentiment. Analysts said that the FII flows may reduce in the coming months as the rupee has started to depreciate. According to an S&P release, the world’s emerging and developed markets continued to post positive returns in 2007. World’s equity markets continued to prosper in May, pushing the S&P 500 to a record high close. In May, 21 of the 25 emerging markets posted positive gains, averaging 6.39%. In the developed world equity markets, 24 out of 27 markets posted gains with average returns of 3.99 per cent.

As per the report, the world interest rates increased for the month, with People’s Bank of China, Bank of England and Norway increasing their interest rates. The hardening of interest rates in other countries will be good for the Indian economy, as external borrowings will come down and the exports of Indian companies will not be hit, the report added.

 

IEA SEES HIGHER OIL DEMAND

World oil demand will rise more quickly this year than previously thought, the International Energy Agency (IEA) said, adding weight to consumer nations’ calls for more OPEC oil.

In its June monthly report, the adviser to 26 industrialised countries lifted its forecast for 2007 growth in world oil demand to 1.7 million barrels per day (bpd) or two per cent, up 2 lakh bpd from the previous forecast. Fuel inventories in the industrialized countries that are members of the Organisation for Economic Co-operation and Development fell in the first quarter as the impact of OPEC supply cuts kicked in. While inventories rose 9.9 million barrels in April, the IEA warned the trend may reverse should the 12 member OPEC maintains production close to current rates. OPEC insists supply is enough and says a strain on oil refineries in the US and other consumer countries, as well as violence in Africa’s top exporter Nigeria have pushed prices higher. OEPC meets next on September 11 to set supply policy and has ruled out a need to gather before then.

TOURIST EARNINGS RISE 17.4%

Foreign exchange earnings from overseas visitors rose 17.4% in the first 5 months of this year as economic expansion drew international executives and more tourists visited the beaches of Goa and Kerala. Earnings rose to $3.07 billion in the 5 months ended May 31, from $2.61 billion a year earlier, the Ministry of Tourism said in a statement. Overseas tourist arrivals rose 12% to 2.03 million. In May, earnings from overseas visitors rose 23.6% to $455.6 million as the number of visitors rose 5% to 2,71,454. Foreign exchange earnings from overseas tourists in 2006 rose almost 15% to $6.57 billion.

INR = INR looks strong as flows are still there although a bit reduced. Sell on rallies preferred. Range likely 40.30 - 41.20. RBI intervention will only give better opportunity for selling USD.

EUR = Euro looks rangy to bearish as corrective upmove is in progress. Rate expected 1.3220 - 1.3520. Selling on rally preferred. Against INR rate likely 53.80 - 55.30.


GBP = GBP also looking for correction and will give better opportunity to sell as USD strength still intact. Range expected 1.9495 - 1.9880. Selling on rally preferred. Against INR rate likely 79.00 - 81.50.

JPY = Risk aversion and lower yields have kept JPY weak. Range expected 121.50 - 125.50. Buying on dips suggested. Against INR, range expected 32.80 - 33.80.

PS: Views expressed here are only indications. The Bank or any of it's officials will not be responsible for any consequences of any decisions taken on the basis of these indications.

FCNR (B) DEPOSITS (w.e.f. 01.07.2007)						NRE(w.e.f.01.07.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	4.68	5.57	3.78	4.10	6.02	5.43
2 Years & above but less than 3 years	4.68	5.55	3.96	4.19	6.06	5.43
3 Years & above but less than 4 years	4.71	5.56	4.00	4.25	6.14	5.46
4 Years & above but less than 5 years	4.75	5.52	4.01	4.29	6.22	5.46
5 years only	4.79	5.47	4.03	4.31	6.22	5.46
SB NRE - 3.50 % at par with domestic savings deposit

 

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