Key Highlights
- Global growth concerns persist, with PMI manufacturing indicating contraction in US, Eurozone, UK and Japan, and US PMI Services reaching a seven-month low.
- Headline inflation rose in US, Eurozone, and UK in December.
- Markets have revised their interest rate cut expectations amidst hawkish commentary from central bank officials.
- Markets expect Fed to begin rate cuts in May 2024 (shift from earlier March 2024 expectation).
- India’s goods deficit narrowed to a 5-month low of USD 19.8 billion in December.
- FPI inflows were at a 3 year high in December. So far in January, equities experienced FPI outflows. However, FPI inflows in debt have sustained.
- 10Y IN-US yield differential has slightly lowered to ~305bps due to rise in UST yields.
- We expect USD/INR to appreciate to around 82 levels in CY24 amidst a soft dollar, robust FPI inflows and a comfortable current account deficit.
- RBI interventions to build forex reserves may curb INR appreciation.
