FxWirePro: Hedge Indian union election outcome turbulence in INR

Indian equities, bonds, and the currency rallied sharply on Monday on expectations that PM Modi performed better than expected in the federal election. Various exit polls suggest PM Modi’s National Democratic Alliance (NDA) coalition is set to win between 265-350 seats (2014: 341 seats) out of the 543-seat Lower House. It is expected to clear the 272-seat majority mark. The final result will be announced on 23-May.

The fact is that the result will still be much better than what most had expected particularly amid a number of headwinds. 

There was however some semblance of calm yesterday with a lot of good news seemingly priced in. A return of the Modi government will be good news for investors in terms of policy continuity and a stable coalition government. A slowing economy and lingering trade tensions are likely to see RBI press ahead with another rate cut in June. This could help restrain INR gains amidst strong net portfolio inflows. Although we have already seen some outperformance of INR in NEER terms, whilst Indian equities and portfolio momentum have also outperformed relative to regional peers.

Bearish INR risk scenarios: Crude oil price spike; political uncertainty 

Bullish INR risk scenarios: Inflow momentum remains strong; domestic growth rebounds.

For today, the Indian rupee has been inching marginally lower against majors, at 69.78 versus the dollar, at 77.93 versus euro. USDINR pair is expected to be traced within the range of 69.40 and 70.05 levels for some time. We advocate deploying long USDINR futures of mid-month tenors on hedging grounds. Courtesy: Commerzbank

Currency Strength Index: FxWirePro's hourly USD is at 12 (mildly bullish) while articulating (at 12:35 GMT). 

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