“The ten year yield may fall less compared to one year. Market hopes of a rate cut in February or April should keep the mood positive. If foreign portfolio investors’ (FPIs’) appetite comes back on the back of lower US yields, it will be another positive,” Krishnamurthy says, adding that the market will eventually want to look into the Budget math post general elections that would determine yield trajectory going forward.
However, major central banks in the US, the EU, the UK and Japan will also normalise their balance sheets, which will drain out liquidity and push up global yields. Indian yields will surely get influenced by it.
For the rupee, which depreciated 8.7 per cent in 2018, it could be a difficult year as geopolitical uncertainties still loom large. The dollar may flip-flop, impacting emerging markets
currencies too. Local equity flows would directly influence the exchange rate.
“We expect the rupee to be in the range of 69 to 76 a dollar with a bearish bias. We may see significant correction in equity markets
in India normally react after a gap in the US as seen historically. Additionally, we see risk aversion stemming due to global tensions, bearish equities and overall growth slowdown,” said Abhishek Goenka, managing director and CEO of IFA Global. The world has also not seen the end of trade wars and a renewed currency war could be in the offing. If there is a persistent pressure on exchange rate, the RBI will be forced to increase its policy rates.
“Rupee weakness will be driven by a global slowdown and financial market stress, trade war and Chinese currency depreciation, FPI outflow from India amongst other emerging markets, and due to policy normalisation by the EU and the US,” said Samir Lodha, managing director, QuantArt Markets Solution.
“Indian markets’ immunity remains low to any external shocks because of weak banking sector, ailing corporate balance sheet, political uncertainty and cost,” Lodha said, adding the rupee could test new low of 78 a dollar in 2019 because of the above factors.