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Indian Rupee, Nifty 50 Outlook: Stimulus Welcomed, Global Covid Cases a Threat

Indian Rupee, Nifty 50 Outlook: Stimulus Welcomed, Global Covid Cases a Threat

Daniel Dubrovsky, Strategist

Indian Rupee, USD/INR, Nifty 50, Indian Fiscal Package, Covid - Talking Points

  • Indian Rupee fell, Nifty 50 rose on more local fiscal stimulus
  • RBI on the sidelines? Rising global Covid cases a risk ahead
  • A path higher for USD/INR is filled with technical obstacles
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The US Dollar gained against the Indian Rupee over the past 24 hours as the Nifty 50, India’s benchmark stock index, set new record highs. This is as India’s government announced additional fiscal stimulus measures, bringing the government’s total response to combat Covid at around INR30 trillion, or 15 percent of GDP. Might USD/INR find room to extend gains?

Yesterday’s package totaled about INR9 trillion and included 100 billion towards an employment plan to help the poor. This is as 650 billion went to farmers in the form of fertilizer subsidies.

Indian Stimulus Highlights

  • Extending an emergency credit line guarantee
  • Entities in 25 stressed sectors can get additional credit
  • Tax relief to certain real estate transactions
  • Repayment under the scheme was extended to 4 years from 3 prior
  • INR180b for a housing plan
  • INR30b for EximBank for lines of credit
  • INR9b for R&D into a Covid vaccine
  • An INR102b outlay for manufacturing spending

Finance Minister Nirmala Sitharaman noted that the economy is seeing a strong recovery, not just due to pent-up demand. This is a welcome step from the government with the nation anticipated to slip into a recession. According to Bloomberg estimates, India’s third-quarter 2020 GDP is expected to contract 11% y/y and then by -4% in the next one.

Yesterday’s local inflation print also paints a tough road ahead for the Reserve Bank of India (RBI). CPI clocked in at 7.61% y/y in October, up from 7.3% prior. This is well above the RBI’s 2-6% target range, opening the door to rates that stay unchanged for the time being. Hence the importance of the fiscal stimulus boost with the central bank staying on the sidelines.

USD/INR thus remains vulnerable to external forces. While Indian Covid cases are on the decline, elsewhere more is being reported in places like the United States and Europe. This has opened the door to isolated lockdowns, posing as a risk to global growth. That may dent upside progress in the Nifty 50 and boosting the haven-linked US Dollar. Still, the US presidential election seemed to cool global trade war fears, which is likely bullish for emerging market assets.

Indian Rupee Technical Analysis

USD/INR may be at risk to a turn lower given the presence of negative RSI divergence, showing upside momentum on the decline. This is as the pair is on the cusp of testing the falling trendline from April which could reinstate the focus to the downside. Keep a close eye on the near-term rising support line from October. A break under could open the door to extending losses towards lows from September.

USD/INR Daily Chart

Indian Rupee, Nifty 50 Outlook: Stimulus Welcomed, Global Covid Cases a Threat

USD/INR Chart Created in TradingView

Nifty 50 Technical Analysis

The Nifty 50 extended past all-time highs set in January 2020, soaring into record territory. Prices recently stopped short of the 100% Fibonacci extension at 12770. A push above this price exposes the 123.6% level at 13062. Otherwise, below the former 12246 – 12430 resistance range could act as new support in the event of a turn lower.

Nifty 50 Daily Chart

Indian Rupee, Nifty 50 Outlook: Stimulus Welcomed, Global Covid Cases a Threat

Nifty 50 Chart Created in TradingView

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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