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The Fed raised the interest rates by another 75bps yesterday, as expected. This is the third back-to-back 75bps rate hike this year by the US central bank. With the latest hike, the Fed fund rate (FFR) now stands in the range of 3.0%-3.25% and is the highest since January 2008. The FOMC revised the median FFR at the end of 2022 up by 100bps to 4.4% from 3.4% in June, indicating a cumulative rate hike between 125bps over the next 2 FOMC meetings this year. For 2023, the median FFR is revised up 4.6% vs. 3.8% in June, suggesting no rate cuts in 2023 and maintaining the terminal rate of 4.6% till 2024.

These projections are much more aggressive than what investors had been pricing earlier. The dot plot projections are suggesting that the Fed will ‘keep at it’ till it can see inflation coming down under its target range. The Fed also made it clear that it is ready to sacrifice growth and is increasing the view that the demand and labor market need to cool off to get the runway inflation under control. The Fed chairman, Jerome Powell repeatedly used the words ‘restrictive interest rates for a longer period’ to emphasize that the central bank’s main goal is to tame inflation that is running hot at 4-decade high levels.

What does it mean for the Indian economy?

A more aggressive tone by the Fed doesn’t spell good news for emerging market currencies including INR. Post yesterday’s FOMC meeting, the DXY index zoomed to 111.78, the highest in 20 years. The INR once again crossed the psychological value of 80 against the dollar, touching a new all-time low of 80.68. The RBI has been continuously intervening in the forex market to cushion the fall in rupee value. This intervention is depleting India’s foreign currency reserves at an accelerated pace. The RBI has already spent $82.8 billion from its forex reserves in 2022 so far, with the reserves currently standing at $550.8 billion as of 9th September 2022 against $642.4 billion last year. The reserves are now equivalent to covering about nine months of import compared to 16 months a year ago.

With the reserves depleting in the past, the RBI will now be more prudent in the extent of its intervention to support the rupee. Going forward, the RBI might let the rupee weaken due to a widening trade balance, elevated global commodity prices, and stretched valuations of INR compared to other Asian currencies. In addition, higher interest rates in major economies globally will put pressure on the RBI to go for a higher rate hike and stay at higher rates for a longer period, which might slow down the domestic economic growth. As Powell said in his press meeting – “There is no painless way to tame inflation”. It might just be the start of the pain.

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IdeaForge Technology Pvt., India’s largest drone maker backed by Qualcomm Inc., is considering an initial public offering in Mumbai that could raise about $125 million, according to people familiar with the matter. The company is working with financial advisers on the potential listing, which could happen in the first quarter of 2023, the people said. The Mumbai-based firm is seeking a valuation of about $700 million in the share sale, which could mostly consist of new shares, the people said.

IdeaForge is looking to file a preliminary draft prospectus with the regulator by December, said the people, who asked not to be identified as the information is private. Considerations are at an early stage and details of the offering including size and timeline could still change, the people said. A representative for IdeaForge declined to comment.

Founded in 2007, IdeaForge makes drones for India’s armed forces, police, and homeland security as well as industrial applications, according to the company’s website. It is licensed by the Ministry of Defence to manufacture unmanned aerial vehicles. In addition to Qualcomm Ventures, it also counts Infosys Ltd. and Florintree Capital Partners, which was co-founded by former Blackstone Inc. fund manager Mathew Cyriac, among its backers.

India’s IPO activity has slowed significantly amid a global slump on concerns over rising interest rates and a potential recession. Companies have raised about $5.5 billion through first-time share sales in India this year, down by almost half from the $10.2 billion raised during the same period in 2021, according to data compiled by Bloomberg.

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The rupee appreciated 16 paise to 79.65 against the US dollar in early trade, in line with a positive trend in domestic equities. At the interbank foreign exchange, the domestic unit opened at 79.70 against the dollar. Since the beginning of this year, the Reserve Bank of India (RBI) has been defending the local currency relentlessly from the onslaught of US dollar outflows. Unless US Fed takes a dovish pivot, sharp appreciation in the rupee is unlikely, said Jigar Trivedi, Senior Analyst – Currency & Commodity, Reliance Securities in an interview with Harshita Tyagi of FinancialExpress.com. Meanwhile, any news on the inclusion of Indian bonds in JP Morgan’s emerging market index will be a short-term relief for Rupee, he added. Here are the edited excerpts from the interview.

The rupee has been hovering near the 80 mark for the past couple of weeks, will it move below 80 in the near term?

Rupee weakness can be mainly attributed to macro factors such as a strong dollar, rising real rates in the US, and an aggressive Fed ready to go to any extent to quell the surging inflation. Unless we see a dovish pivot from the Fed, sharp appreciation in Rupee is unlikely.

What will be the key triggers for the Rupee movement going forward?

The FOMC meeting on 21st September is going to be crucial. For now, the focus will be on Fed terminal rates from September projections. Having said that, any announcement of Indian bond inclusion in global indices might prop up Rupee.

Inflation is high, triggering expectations of aggressive rate hikes in the upcoming RBI MPC. How will the repo rate hike impact the rupee?

In August domestic inflation rose to 7%, for the first time in 4 months mainly due to food and shelter inflation. However, India’s GDP expanded by 13.5% in Q2, particularly due to the lower base effect, but was below expectations. Amid slowing growth, we expect RBI to hike by 35 – 50 bps in the September meeting. Higher repo rates will help the currency as it will improve the inflows into high-yielding bonds.

What can be expected from the central bank in the coming days to stabilize the rupee?

RBI is likely to stick to forex intervention via spot markets to stabilize the Rupee. Meanwhile, any news on the inclusion of Indian bonds in JP Morgan’s emerging market index will be a short-term relief for Rupee.

How will the inclusion of Indian bonds in the global index, Trade settlement with Russia in rupees impact the local currency?

The inclusion of Indian bonds into JP Morgan’s emerging market index is a game changer for Rupee and will help to reduce the BoP deficits. The move is expected to bring about $30 billion in FY24 and the odds of inclusion have risen after Russia’s exclusion from the same post the Ukraine invasion. International trade in Indian Rupee is far from reality but is a good initiative from the central bank. India’s trade with Russia accounts for almost $2 billion, which is comparatively less compared to global trade.

What is the ideal investor strategy for forex traders for the next 6 months?

The best strategy going forward might be a Rupee bid. Pain could be seen for the emerging market currencies until the dollar peak, which is not expected until 2022 end, as Fed remains committed to bringing down inflation to the 2% target, no matter what. Market participants are closely watching for the September SEP, which might give more cues on Fed’s futures rate hikes. We expect the Fed funds rate to be 4% by year-end and 4.5% by March 2023. Terminal rates might even rise if inflation fails to cool down.

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Sebi is looking to boost surveillance of social media and other platforms through a web intelligence tool using artificial intelligence and data analytics to probe violations of various securities laws by individuals, groups, and other entities.
In this regard, the capital markets regulator has invited Expression of Interest (EOI) from solution providers to implement, install and maintain a ‘Web Intelligence Tool’, according to public notice.

Noting that internet usage has risen exponentially over the last few years which resulted in the production of immense amounts of unstructured publicly available data on the web, Sebi said this unstructured data has the potential to provide deep investigation insights about various entities, individuals, groups, and topics related to violations of different securities laws.
Manual extraction and analysis of massive amounts of unstructured publicly available data in order to reveal actionable insights are usually time-consuming, tedious, and have limited efficacy.

“Sebi is looking for a Web Intelligence Tool which provides AI (Artificial Intelligence) based solutions to extract and analyze unstructured publicly available data to gain deep intelligence insights about various entities, individuals, groups and topics,” per the notice.

The new tool is expected to save time, ease the analysis process, and improve the overall investigation process efficiency. The regulator said that the tool should be able to gather unstructured publicly available data from the web, including public websites, social media platforms, and open source databases among others, in respect of relevant entities, individuals, groups, and topics.

The tool should enable investigators to easily analyze massive amounts of complex unstructured data using its AI and data analytics capabilities.

It should have the capability to visualize the data in the form of a network chart to find insights about connections among relevant entities, individuals, and groups. The visualization should be interactive and allow users to work with the data as per user requirements.

The tool should generate ready-made reports based on the defined report templates, and the users should be able to create and modify report templates without any coding requirement. Interested parties can submit the bids by October 3, the regulator said.

Recently, Sebi has unearthed a large number of insider trading and front-running cases where ‘mule accounts’ were being used with the help of the latest technology tools.

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The Indian rupee is expected to remain sideways on Friday amid falling crude prices, risk aversion in global equity markets, and a strong dollar. The USDINR pair is having resistance at 79.90 and 80.15, while the support has shifted to 79.40 from 79.05, according to analysts. In the previous session, the rupee declined due to strong demand for the U.S. dollar from oil companies, while markets braced for a big rate hike from the U.S. Federal Reserve next week. A firm American currency and a negative trend in domestic equities weighed on the currency. At the interbank foreign exchange market, the local unit opened at 79.53 per dollar, and settled at 79.73, down 21 paise over its previous close.

Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services

“Rupee on Thursday consolidated in a narrow a range and volatility remained low even after inflation number from the US and the UK came above estimates. The dollar was slightly higher following data showing U.S. retail sales unexpectedly rebounded in August. But gains for the dollar were restricted as data for July was revised downward to show retail sales declining instead of flat as previously reported. The greenback has been supported by the view that the Fed will keep tightening policy aggressively.”

“Yen was under pressure after a record Japanese trade deficit for August. The yen’s fall by nearly 20% over the past six months added to higher import costs, aggravating already high costs of energy and raw materials. The market remains choppy knowing that there’s a Fed meeting next week. Even though market participants agree that there could be a 75 basis points rate hike, it’s what the statement adds to previous commentary and what Chairman Powell says in his press conference. We expect the USDINR(Spot) to trade sideways and quote in the range of 79.40 and 80.05.”

Dilip Parmar, Research Analyst, HDFC Securities

“The Indian Rupee could fall lower following a weak handover from overseas. Overnight, we have seen risk-averse moods after mix bag of US economic data that backed the view of hawkish monetary policy. US Swaps traders are currently pricing in a 75 basis-point hike when the Fed meets next week. The weakness in the Chinese yuan which crosses the 7 could also weigh on other regional currencies.”

“Asian stocks headed for the fifth week of declines following more weakness in US equities and a surge in short-end Treasury yields that reflects expectations for outsized Federal Reserve interest rate hikes. On Thursday, spot USDINR gained 26 paise to 0.33% to 79.79 and heads for the first weekly gain after two weeks of fall. The technical set-up turned bullish after the past two days of price action. The pair is having resistance at 79.90 and 80.15 while the support has been shifted to 79.40 from 79.05.”

Amit Pabari, MD, CR Forex Advisors

“Inflation in the US and its strong consumer and labor markets are backing the Fed’s aggressive rate hike decision in the upcoming policy meeting on 21st September. Markets have priced in fully the chance of an increase of 0.75 bps while the 30% see an increase of 1 full percentage rate hike as of today, all of which is supporting the strength in the US dollar and shot the US 10Y yields to a 52-week high yesterday. Here, the recent sharp appreciation in rupee near 79.00 levels has been quickly washed off for it to trade again back to near 79.80 levels.”

“It could be the influence of the strong dollar, weaker sentiments, or weakening of the Chinese Yuan past 7.00 all negative factors weighing on the rupee. The next move toward 79.95 and 80.10 is basically the RBI’s play as one needs to be cautious of the central bank intervention from the past two times. For now, the level of 80.10 remains a strong resistance for the USDINR pair, which hasn’t been able to breach multiple times in the past though however posed the rest of the currencies are. Breaking 80.10 could invite another upside move of 50 paise to 1 rupee. On the flip side, 79.00 remains strong support for the pair.”

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