Rupee Trades Lower At 67.27 Against Us Dollar

The Indian rupee on Tuesday fell, while 10-year bond yield rose as a surprise spike in retail inflation spurred concerns that the Reserve Bank of India (RBI) may wait more for cutting interest rates. Fall in global markets ahead of the US Federal Reserve meeting and the UK referendum also dampened sentiments.

The rupee opened at 67.20 a dollar and touched a low of 67.29. At 2.03pm, the home currency was trading at 67.27, down 0.20% from its previous close of 67.14.

India’s 10-year bond yield was trading at 7.538%, compared with Monday’s close of 7.524%.

Most Asian currencies were trading higher. Japanese yen was up 0.397%, Hong Kong dollar gained 0.049% and South Korean won rose 0.022%. Meanwhile, Philippines peso was down 0.591%, Indonesian rupiah 0.635%, Taiwan dollar fell 0.068% and Malaysian ringgit fell 0.0431%.

India’s benchmark Sensex index fell 0.49% or 128.65 points to 26,268.12. In the last four sessions, Sensex fell 2.68% or 752.54 points. So far this year, Sensex is up 0.69%.

The wholesale price inflation (WPI) rate for May rose 0.79% its highest since October 2014. According to a Bloomberg poll of analysts, WPI will be at 0.44% for May compared to 0.34% in April.

Fed officials will meet on 14-15 June to discuss policy, while the Bank of Japan is likely to stay on hold at its 16 June meeting. The UK referendum on its European Union membership is due on 23 June.

So far this year, the rupee has weakened 1.35%, while foreign institutional investors (FIIs) have bought $2.81 billion from the local equity market and sold $1.17 billion in debt markets.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 94.686, down 0.34% from its previous close of 94.362.

Source: livemint.com

Why Brexit Could Be A Bigger Risk For India Than A Jump In Oil Prices And A Fed Rate Hike

On 23rd June, Britain will vote whether it wants to remain a part of the European Union (EU), or leave. A vote to leave the EU would start a long and complicated process that would result in a fundamental change in the UK's relationship with other members of the EU.

There are pros and cons for both parties. Increasing restrictions and introduction of political borders increases the cost of trade and services. Financial Times estimates the GDP hit to be at 2-7% with most of the losses front-loaded if Britain leaves the EU and fails to strike a deal or reverts into protectionism.

On the other hand, as per an independent think-tank Open Europe, if the UK stays with the EU and manages to strike liberal trade agreements with the members, the benefits would be 1.6% of the GDP by 2030. The EU remains the largest market for Britain's exports, constituting 40-45% of its exports. The UK's primary goal is likely to be to retain access to the EU's internal market but it will find it difficult to gain liberal trade terms from the EU if it chooses to exit the EU. Economic factors will hurt both the parties. Britain is a strong member of the EU and losing Britain will weaken the EU, both economically and politically.

A Brexit could trigger capital flight from Britain. It could have a profound effect on London's real estate market, among the most vibrant in the world. Stricter regulations will curb capital flows both from within the EU and outside it (read China & Russia). Brexit will only compound inflation and the sterling's worries.

Given London's status as a global nerve centre outside New York, BREXIT could weaken the EU as far as it share in world trade and commerce is concerned. For Britain, separation from the EU will mean stricter immigration laws. Pertinent to note that Britain has benefitted from the influx of skilled immigrants. The number of EU workers in Britain is now estimated at roughly 2.15 million. As per the OECD, immigration accounts for half of the UK's growth since 2005 and immigrants have filed 2.2 million jobs since that period. Stricter immigration laws could make it difficult for EU skilled workers to work in UK.

Also read: Indian stocks that are getting jittery about Brexit vote

Likely beneficiaries of Brexit: In my view, dollar assets will emerge as the biggest beneficiaries of Brexit. Events like these are usually followed by periods of volatility and economic pain. Given the current state of global economy, investors will be quick to rush to safer havens. Few asset classes can cope with capital flows of this magnitude. I believe that capital will flee to near-dated US Treasuries in the short term and will ultimately find its way into other dollar assets in the medium to longer term.


Impact on India: As far as India is concerned, in the near term it will heighten global volatility thereby impacting capital flows and in medium term we will most likely be impacted through currency exchange. India has a substantial trading corridor with EU. Any material depreciation of the Euro/Pound could lead to increased headaches for India in a sluggish export environment. Indian businesses have a material presence in both the UK & Europe. As per The Guardian, there are more than 800 Indian-owned businesses in the UK, with more than 110,000 employees. Besides, Brexit, could also endanger the flow of investment and personnel by diminishing Britain's role in providing access to Europe.

To conclude: Brexit, if it happens, will have implications; UK Real estate prices may correct (on account of thinner capital flows from EU), inflation will climb on expensive imports, London's financial centre status may get threatened if money flow and settlements are hampered. Goldman Sachs estimates 15-20% drop in the sterling as a response to Brexit. The long-term economic impact of Brexit is hard to discern, but the short term disruption while the UK negotiates and renegotiates is only likely to be bad news for both sterling and Euro assets.

It is difficult to gauge the precise medium to long-term economic impact of Brexit on both the parties concerned. However, the outcome of Brexit in my view is the biggest macro risk affecting fund managers and investors - bigger than oil price or even the Fed rate hike. Having said that, at this moment, it is almost impossible to predict the outcome. We will have to wait till June 23rd to know the future of EU and Britain.

 

Source:economictimes.indiatimes.com

Latin America Pips Africa To Be India’S Largest Auto Export Market

NEW DELHI: Latin America, the furthest export market for India, has overtaken Africa to become the largest for vehicles shipped out of India. As much as a quarter of vehicles exported out of India in value terms went to Latin America in the last financial year, compared with 21% the year before, latest industry data show. Exports to Africa fell for the first time in a decade.

India exported buses, trucks, cars, motorcycles and chassis fitted with engines worth $8.86 billion (Rs 59,360 crore) in the year ended on March 31, 2015. While overall vehicle exports remained almost flat, shipments to Latin America jumped nearly 19% to $2.26 billion. There is a huge logistics cost involved in shipping vehicles to Latin America, some 15,000 km away from India.

But India's highly costeffective manufacturing capabilities and government incentives are helping offset some of the impact, say industry experts. Some auto makers that weren't doing well in the domestic market were only too happy to utilise the opportunity offered by a market with profiles similar to India, as it allowed them to keep their factories running here.

"India is known for its frugal engineering, which enables automobile makers to manufacture vehicles here at competitive costs," said Puneet Gupta, associate director at consultancy firm IHS Automotive.

"Of course, there are freight costs involved in shipping vehicles to Latin America. But if you look at it holistically, exports help companies improve capacity utilisation, better productivity of hired workers, gain economies of scale and meet commitments made to suppliers." Europe continued to totter.

Though the share of vehicle exports to the European Union improved marginally to 14% from 13% the previous fiscal year, it was still a far cry from fiscal 2010, when the continent accounted for as much as 47% of total value of India's vehicles exports. In percentage terms, Africa accounted for 23% of the value in fiscal 2016, compared with 29% the year before.

  Falling oil and commodity prices, which helped auto makers improve sales and profitability in the Indian market, are blamed for the distress in Africa, where commoditydependent economies such as Ethiopia, Angola, Algeria and Nigeria are hit badly by the price plunge. "The fall in crude oil prices has hit the dollar revenue of many countries in Africa.

They now prefer to use dollar for import of essential items," said Sugato Sen, deputy director-general of the Society of Indian Automobile Manufacturers. "We have requested the government to allow rupee trade so that exports to these countries improve."

Even as the African market proved to be a challenge, the depreciation of the rupee pushed auto makers to explore markets in Latin America. That, at a time when the Indian government is working towards developing Latin America as a bigger market for the country's exports to offset slowing or shrinking shipments to its traditional markets.

European car maker Volkswagen is among the largest exporters out of India to Latin America. Of the 70,000-odd vehicles Volkswagen India shipped out in 2015, as much as 63,000 — mostly the Polo and Vento — made their way to Latin America. The madein-India Vento, which replaced Jetta Classico, has been well accepted in Latin American markets, especially Mexico.

It was second on the list of top selling cars in Mexico in the first six months of 2015, show data available with VW India. Andreas Lauermann, managing director at Volkswagen India, said the growing demand from Latin America has helped the company offset the decline in Africa.

Hyundai, which is the largest car exporter from India, shipped more than 49,000 cars in 2015 to 32 countries in Latin America. Latin America, in fact, accounted for 29% of the company's total exports out of India last year. Its made-in-India portfolio in that market comprises the Eon, i10, Grand i10, XCent, i20 Elite, i20 Active and the Creta.

General Motors ships the Chevrolet Beat from India to Latin America, while rival Ford exports the Figo and Figo Aspire. Suzuki Motor sells the Ciaz made by Indian unit Maruti SuzukiBSE -0.75 %. Incentives offered by the Mexican and Indian governments help in mitigating logistics expenses.

Lauermann of Volkswagen explained: "Mexico offers exemption of duties on imported cars for a number equivalent to 10% of the total production of cars done by the brand in Mexico. So, number of cars up to 10% of Volkswagen production in Mexico can be imported by Volkswagen into Mexico, without having to pay import duties on it. Add to that the good cost and quality position of our manufacturing in India, and it forms a good business case."

 

Source:economictimes.indiatimes.com

Rubber Growers Association Opposes Move To Import Rubber Under Trq

KOCHI: Indian Rubber Growers Association has voiced concern at the move initiated by the consuming industry to change the Exim policy on rubber including import at reduced rate of duty under tariff rate quota (TRQ).

Any move to reduce the import duty further will bring down the price and production sharply, said association general secretary Siby J Monippally.

Growers are getting Rs 130 per kg now but the cost of production is Rs 160 per kg. Imports under TRQ could be termed as a disaster for the struggling growers. "It is true that there is shortage of natural rubber in the country. But the Indian rubber growers are capable of producing the required quantity for the consuming sector, if prices are fair and reasonable," he said.

The association called for a conducive atmosphere which is win-win for all should be evolved through consensus among stakeholders for the better future of Indian rubber industry. If imports are made more liberal by change in the policy it will put an end to rubber cultivation in India, which was developed over a period of 60 years.

The non-tariff measures like port restriction and six months stipulation for exports are not restricted in nature since 90 per cent of the imports are through Mumbai and Chennai port. Shorter export obligation will hasten exports and restrict flooding of imported NR in the country, Monippally said.

Any move to change the Exim policy on rubber including Imports under Tariff Rate Quota (TRQ) is unwarranted and against the interest of the Indian rubber industry particularly the small growers.

 

Source:economictimes.indiatimes.com

India's May Vegoil Imports Drop By 25 Per Cent From Earlier Year

MUMBAI: India imported 1.024 million tonnes of vegetable oil in May, down 25 percent from a year earlier, as demand fell during the summer season amid higher inventory at ports, a leading trade body said on Tuesday.

India, the world's largest buyer of vegetable oils, shipped in 8.6 million tonnes during the first seven months of the oil year that started Nov. 1, up 10 percent from a year earlier, Mumbai-based Solvent Extractors' Association of India said in a statement.

 

 

Source:economictimes.indiatimes.com