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

Currency Outlook

USD/ INR moved down during the fortnight from a high of 43.68 to 43.26 on speculations of Chinese yuan revaluation. However the Chinese denial saw USD gaining some reprieve and close the fortnight at 43.42 / 43. On 18th May 2005 China starts trading 8 new currency pairs within its borders. Some market players still believe that China may revalue its currency against USD on that day. This belief may lead to some USD losses against INR in the initial days of the ensuing fortnight. We expect USD/ INR to trade the range of 43.20 - 43.60 in the forthcoming fortnight.

Six month premia closed the fortnight at 1.54 %. We expect the six moth premia to play the range of 1.45 % - 1.65 % in the ensuing fortnight.

Last fortnight saw EUR moving down from 1.2985 to 1.2610 on positive economic data from US with Lesser trade deficit for Apr 05, higher jobs generation and double the forecast increase in retail sales. Market hopes about continued rate hikes have been given a boost. Higher yields and prospects of good economic growth have led to a renewed bullishness on USD. Meagre GDP growth, bearish consumer sentiment and higher unemployment seem to suggest more downside for EUR.
Technically the break of the Trendline support at 1.2860 on a weekly basis seems to suggest more losses for Euro. During the ensuing fortnight we expect Euro to cap around 1.2730 / 50 levels for a move down to 1.2460 levels. Against INR, EUR is expected trade the range of 54.10 and 55.30.

GBP suffered major losses against USD last fortnight moving down from 1.9065 to 1.8473 due to a combination of good US data and a fall in UK retail sales and industrial output. Reduction in the majority of the Labour Party also added to the woes of GBP.

Technically the break and the close below long term trendline support of 1.8820 do not augur well for the GBP. In the ensuing fortnight we expect GBP to cap at 1.8660 levels against USD for a move down to 1.8250 levels. Against INR, GBP would trade the range of 79.40 - 80.90.

JPY has fared comparatively better against USD compared to EUR and GBP since speculators about Chinese yuan have been bullish on JPY as a proxy for the Chinese currency. In the ensuing fortnight USD is expected supported around 105.50 levels against JPY for a try high to 108.15 levels. Against INR, JPY would trade a range of 40.10 and 41.15.

Other News Items

During the financial year 2004-05,The revenue of the Indian IT industry, which includes hardware, software and the IT enabled services sectors, crossed the Rs.1,00,000-crore mark, according to NASSCOM president Mr.Kiran Karnik.

The Indian IT industry achieved two Landmarks during the same period. The revenue of the hardware, software and service sector crossed Rs. 1,00,000 crore and direct employment by the software and service sector touched 1million. The president said the exports from the IT sector crossed $17 billion during the same period. However .the IT industry faced certain growth constraints due to the delay in development of physical infrastructure.

Mr Vivek Harinarain, IT secretary, of Tamil Nadu, said the total IT exports from this state during 2004-05 was likely to cross Rs.11,000 crore compared to Rs.8,000crore last year. With the IT sector in the state growing at 40%, we expect that Tamil Nadu’s IT sector will create 1 million jobs in the state over the next 4 to 5 years.

Source : The Financial Express

The Export of marine products from the country registered a 11.10% increase in 2004-05 to touch a record level of $1.48 billion. In Rupee terms the exports increased by 9.11% increase in 2004-05 to a level of Rs 6646.69 crore. The quantity of exports increased by 11.97 % and touched 4,40,473tonnes. However the average unit value realization showed a marginal decline of 0.78%. Items like frozen shrimp, frozen cuttle fish, frozen fish, frozen squid etc showed an increase in exports. However, dried items showed a declining trend. The European Union has emerged as the largest importer of marine products, and Frozen shrimp continued to be the largest item in the export basket accounting for nearly 63.50% of the total value of exports. Of this the share of cultured shrimp stood almost 80% .The new products that were added to the export basket this year were fish burger, frozen crab cutlet, breaded squid ring, fish finger and cultured pearls. Chennai port came first and Kochi port came second in the exports of seafood items.

Source : The Economic times

India, having already emerged as the preferred destination for business process outsourcing (BPO) has now set its sights on becoming the hub for knowledge process outsourcing (KPO). The country stands to gain from its inherent strengths in the healthcare sector, pharmaceuticals and biotech sector and IT sector which offer significant growth potential for KPO, a CII paper has said. According to this paper, KPO would grow 46 % to reach USD 17 billion by 2010. Knowledge process outsourcing requires knowledge and the country’s large number of engineering and technical institutes are geared to address the manpower demand. As per the CII paper titled “India in the New Knowledge Economy”, the healthcare sector could account for 7 - 8 % of GDP by 2012 and provide direct and indirect employment to around 9 million people and it is the largest service industry in terms of revenue and second largest after education in terms of employment.

The study also observed that more than 70 % of the American population prefer a natural approach to health, and spend around USD 25 billion on non traditional medical therapies and products. This naturally makes India one of their most preferred destinations because of Ayurveda, Yoga and Siddha. Moreover in the area of pharmaceuticals, Indian companies are offering custom synthesis services at 30 - 50 % cost savings compared to global costs, and with clinical trials costing about USD 25 million as compared to USD 300 - 500 million overseas, India could become the most preferred destination for outsourcing the CII paper said. The country’s biotech sector too is now on an upswing and is expected to earn USD 5 billion annual revenue by 2010. The country has a wide network of research laboratories, well developed base industries, rich bio-diversity, extensive clinical trial opportunities etc, which will promote it as a major base for KPO, the CII paper said.

Source: Financial Express

India and China may become dominant production centres for their growing automobile markets, as well as for exports, over the next 10 years or so, according to a study conducted by KPMG. By the time the decade draws to a close, Asia can be a passenger car market as large as North America or Europe. With the advent of Free Trade Agreements (FTA) and the emergence of major manufacturing facilities in India and Thailand in addition to China, these three countries are already looking to challenge the traditional Japanese and Korean auto manufacturing dominance, though Japan and Korea may retain a significant technological edge. Indian market has been growing at a significant rate, and is therefore representative of the emerging Asian landscape. By 2009, car production in Asia is expected to touch 17 million units, on par with Europe. There are also opportunities for Indian component manufacturers, though only a few of the proactive players are looking to exploit the emerging opportunity, while most of the Indian component manufacturers are apprehensive of free trade.

The report also talks of two other contrasting scenarios wherein either the auto markets through Asia could become closely integrated with production moving to the most efficient markets or the Asian auto markets could remain fragmented with little regional trade, as a few countries become large domestic markets.

Source: Financial Express

(w.e.f. 06.05.2005) FCNRD				(w.e.f. 06.05.2005)
	USD	GBP	EUR	NRE
1 to 2 years	3.49	4.74	1.99	4.25
2 to 3 years	3.78	4.64	2.16	4.55
3 years	3.92	4.63	2.36	4.70
SB NRE (w.e.f.01.04.2005) 3.40

 

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