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

Currency Outlook

The USD/INR traded the fortnight between 46.42 – 46.62 as global markets traded in ranges on interest rate uncertainties. Higher growth prospects and picking up portfolio inflows did not help rupee much, as oil prices, resultant inflation and higher import bills remained a worry.

Forwards witnessed some paying interest with six months moving higher to 1.42% before closing at 1.37 %.

In the ensuing fortnight USD/INR is expected to trade in the range of 46.35 and 46.65. In forwards paying is preferred, but on dips. Six months expected to trade a range of 1.25 % and 1.45 %.

Euro traded a range of 1.27-1.2940 as US data indicated tamer inflation and slowing growth, especially in the housing sector, which together reduce the possibility of Fed rate hike on 20th Sep 06. Bernanke has been deftly avoiding monetary policy in his speeches.

Better GDP growth and better consumer sentiment in Euro zone, improving current account position, and the hawkish tone of Trichet were positive for Euro. But Euro’s inability to break convincingly above 1.2940 – 70 area remains a matter of worry for Euro bulls.

In the ensuing fortnight, we expect Euro to cap at 1.2890 for a move down to 1.2680 levels.

EUR/INR is expected to be in the range of 58.95 and 59.95

GBP opened the fortnight high at 1.8938 and touched a low 1.8780 before moving higher to 1.9093 on US interest rate worries. It closed the fortnight at 1.9050. In addition to US interest rate concerns, a better than expected UK second quarter GDP growth and CBI manufacturing order data also helped GBP.

In the coming fortnight, GBP may trade a range of 1.8880 – 1.9155 with favour to buy on dips.

GBP/INR is expected to trade a range of 87.80 and 89.10

USD traded most of the fortnight between 115.90 and 117.50. The losses of yen were due to a lower inflation figure, lower house hold spending and lower than expected manufacturing data all suggesting that BOJ need not be in any hurry to hike rates. This has led to yen losses, particularly against high yielding currencies like GBP, NZD etc.

In the coming fortnight USD / JPY is expected to get supported at 116.50 for a move higher to 118.80

JPY/INR is expected to trade a range of 39.15 and 39.90

 

Other News Items

Non – conventional equipment manufacturing companies from Germany and USA have expressed interest in investing Rs 10,000 Crore in a proposed SEZ for manufacture of renewable energy devices. It is estimated that a minimum area of 1000 hectares would be required for absorbing the proposal of America and Germany.

Speaking at the sixth renewable energy summit, Mr Vilas Muttenwar, Minister for Ministry of Non Conventional Energy Sources (MNES), said that the government is currently evaluating proposals for setting up series of SEZs for manufacturing equipment and systems for non-conventional energy.

And the interest is not limited to foreign companies alone – States of Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka and Chattisgarh have also evinced interest in participating in the SEZ. Besides tax breaks, this kind of a SEZ would enable reduced cost of manufacturing on account of comprehensive infrastructure facilities including power, banking, etc in the region.

The minister also said that the MNES would finalise the locations for setting up SEZs for Rs 10,000 Crore investment proposal from America and Germany within a month. “With regard to the proposals by the 5 states, the ministry would decide on locations in the next 35 – 45 days,” said the minister.

He added that while the government would continue with promotional efforts for non-conventional energy sources, it would put up a more appropriate fiscal regime to attract investors. The present incentive of 80 % accelerated depreciation in the first year has been a motivation to existing profit making companies to invest in renewable energy. However a different approach is required to attract independent power producers and investors to park their fund in the Indian renewable energy sector, said the minister.

(Courtesy: The Economic Times)

Domestic pharmaceutical companies are going global with direct presence in multi-locations in the world. The number of local pharma multinationals has gone up to 12 in 2004 – 05 and 2005 – 06 owing to rising global buyouts and organic expansion.

The new entrants are Dr Reddy’s Laboratories, Wockhardt, Nicholas Piramal, Sun Pharmaceuticals, Glenmark, Orchid Chemicals and Pharmaceuticals to name a few. The drug sector had only one Indian multinational, Ranbaxy till 2004.

While Ranbaxy is still largest in terms of geographical presence and number of global subsidiaries ( 25 countries), Dr. Reddy’s is second in the rank with presence in 10 countries with Sun Pharma and Wockhardt in the third and fourth places respectively.

Although, most of the overseas subsidiaries were set up through global expansions, the number of global acquisitions has also increased substantially in the last two to three years. On the merger and acquisition front, the year 2005 had been quite significant for the domestic pharmaceutical sector. Since the Indian companies have adopted new strategy of acquiring medium and small companies overseas, the estimated worth of global acquisitions in the last three years is more than Rs. 4500 Crore.

Analysts expect the M & A activity to intensify as the consolidation will play a crucial role in future. The size and economic scale does matter in the highly competitive environment. During the last two years, major acquisitions were engaged in marketing, but some domestic companies had invested in building manufacturing capacities in developed markets. Indian companies have already installed plants in the US, Europe, Brazil, Russia and China.

Analysts pointed out that the medium scale domestic companies will first strengthen their marketing activity in these countries and then they will set up manufacturing units to improve the supply chain.

(Courtesy: Business Standard)

FEDAI planning talks with RBI to relax norms for FIIs

The Foreign Exchange Dealers Association of India (FEDAI) is planning to hold discussions with the Reserve Bank of India (RBI) regarding relaxation of norms for foreign institutional investors (FII) to re-book forward exchange contract. Liberalising of norms related to forward exchange contract for FIIs is expected to develop and broaden the forex market further. The forex market has witnessed a whooping increase in its daily turnover in past three years from USD 8-9 billion to USD 17 billion.

"We are trying to gauge the impact of allowing FIIs to rebook forward exchange contract and then we will take up the matter with the RBI”, said PK Pain, Chief Executive, FEDAI

FEDAI is also discussing with RBI to relax norms related to forward cover availability for the importers. Currently, a foreign importer importing goods from India cannot take a forward cover in Indian rupees. Further in a bid to deepen the foreign currency Indian rupee options, FEDAI is in talks with RBI to allow trading of structured options (plain vanilla options with riders attached). The introduction of structured options in the domestic forex markets would enable development of complex derivative products as it has been experienced in markets like Hong Kong etc.

As per RBI’s guidelines, a person residing in India or a FII may enter into a foreign currency – rupee option contract with an authorised dealer to hedge an exposure to exchange risk in respect of a transaction for which sale and or purchase of foreign currency is permitted.

Added to this, to enable corporates to hedge their forex exposure more effectively, FEDAI is also conversing with RBI to allow corporates to write (selling) options, who can currently only buy options. Allowing corporates to sell options would help them to earn premium on options.

(Courtesy:Financial Express )

FCNRD(w.e.f. 01.09.2006)						NRE(w.e.f. 01.09.2006)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	5.41	5.24	3.63	4.34	6.35	6.41
2 Years & above but less than 3 years	5.24	5.20	3.75	4.28	6.25	6.24
3 Years & above but less than 4 years	5.18	5.18	3.78	4.29	6.24	6.18
4 Years & above but less than 5 years	5.20	5.14	3.81	4.30	6.27	6.18
5 years only	5.22	5.11	3.85	4.34	6.26	6.18
SB NRE - 3.50 % at par with domestic savings deposit

 

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