The recent correction in Indian equities (Global equities too) has made a lot of market participants extremely bearish about the Indian growth story. Have read a series of news articles indicating that ‘it is the beginning of the end of Indian equity bull run’. Arguments that were put forth to substantiate that ‘Indian equities will continue its bull run’, are now being ridiculed with 25%/35% decline targets.
My sense, this is a healthy correction – getting the market participants back to reality (especially since everyone started to have insane market expectations when equities were surging relentlessly). Indian growth story is very much in place and Indian companies have ‘miles to go’.
Technically, Nifty levels around 10,000-10,100 will be the first short term support – 233-day SMA (blue dotted line) is at 10,089. Do recall that 10,000 is a key psychological level too. Any break of the above will find support around 9,500 (50% retracement of the rally from 7,894 (26Dec2016) to 11,171 (29Jan2018)). Moreover, 377-day SMA (green dotted line) comes around 9,527. The upward moving trendline (pink solid line) connecting the previous lows, is also around the 9,500 mark. Large bull runs are often followed by retracements of around 50%. Doomsday soothsayers can rest a while.
How does this translate to managing forex risk?
If Nifty remains weak, Rupee cannot gain. It can certainly weaken a bit.
USDINR’s first resistance is at 65.30-35, a break of which will target 65.55-80.
Importers should hedge short term liabilities on every dip towards 64.70-80 region.
Exporters can start selling around 65.25-30 – stop selling if 65.35 breaks. Consider vanilla options too.