Rupee To Hover Around 74-76.50 In The Near Term

Amid the moderating Balance of Payment (BOP) surplus, the global headwinds amid new virus risk, faster Fed normalization and tighter global financial conditions might lead to FPIs asking for a higher emerging market risk premium, which could pressure EM assets, including India, Emkay Global has said in a report. Overall, according to the brokerage the INR performance will be caught between mixed external terms of trade, gradually changing global risk environment and RBI's FX stance.

"We will watch out for potential news on the LIC IPO and India's inclusion in global bond indices in the coming quarters, which could spur flows and could be a temporary boost to INR. We see USD-INR in the range of 74-76.50 in the near term," Emkay Global has said in its report.

Q2FY22 current account back into deficit of 1.3% of GDP on account of higher trade deficit

The current account reverted to a deficit of USD9.6bn (1.3% of GDP) in Q2FY22 as against a surplus of USD6.5bn (0.9% of GDP) in Q1FY22 and a surplus of USD15.3bn (2.4% of GDP) a year ago, Emkay Global has added.

"The sequential worsening of the current account was primarily owing to the widening of the merchandise trade deficit to USD44.4bn (5.9% of GDP) from USD30.7bn (4.4% of GDP) in the preceding quarter, reflecting demand normalization, and price and volume effect of oil and gold. Imports rose 16.5% QoQ to USD149.3bn, while exports inched up 7.6% QoQ to USD105bn in Q2FY22. Turning to invisibles, net services receipts remained steady on the back of robust performance of net exports of computer and business services. Net remittances were strong and steady QoQ at USD18.9bn. Net investment income drag increased meaningfully QoQ and YoY to (-) USD10.4bn from (-) USD8.4bn in Q1FY22," the brokerage has noted.