icicidirect us$sensexinversecorrelation
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8/3/2019 ICICIdirect US$SensexInverseCorrelation
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November 10, 2011echnical report
ICICI Securities Ltd| Retail Equity Research
Rising US$ casts shadow over Indian equities
Exhibit 1:US dollar vs. Sensex weekly comparative line chart since 2006 till date
Source: Bloomberg, ICICIdirect.com Research
OutlookAfter a recent break-out, the US dollar INR pair is quoting at a 30-monthhigh of 50.17 levels. The prevailing uncertainty in the financial marketsworldwide following the Euro zone debt crisis has fuelled a surge in theUS dollar, which remains the ultimate safe haven play during times ofambiguity, regardless of the nations own problems.
Further weakening of the Indian rupee could see the US dollar INR pair
head towards the 2009 peak of 52 plus levels in the near term. This could
spell trouble for Indian equities, which are inversely correlated to thegreenback. A spiralling US dollar would derail the pullback in equities,
which could go into a tailspin and re-test the recent lows in the near term.
Historical correlation between Sensex and US$/INR pairOver the last decade, the growing clout of overseas investors is clearly
visible as India has emerged as a force to reckon with in the global arena.
If one wishes to use just one indicator to gauge how the Sensex is
expected to move, the US dollar vs. INR could be a good measure to
track. The movement of the greenback against the INR demonstrates the
demand/supply equation between the two currencies.
As the accompanying chart shows, there is an amazingly closerelationship between the US dollar and the Sensex. In the above chart,the green line represents the Sensex movement since 2006 while the US$INR movement in the same period is represented by the orange line.
Key Technical DataUSD INR CMP 50.17
USD INR 52 Week High 50.323
USD INR 52 Week Low 43.855
BSE Sensex CMP 17362
BSE Sensex 52 week High 20970
BSE Sensex 52 week Low 15745
After a recent break-out, the US dollar INR pair is quoting at a
30 month high of 50.35 levels. The prevailing uncertainty in the
inancial markets worldwide following the Euro zone debt crisishas fuelled a surge in the US dollar, which remains the ultimate
afe haven play during times of ambiguity, regardless of the
nations own problems
Further weakening of the Indian rupee could see the US dollar
NR pair head towards the 2009 peak of 52 plus levels in the
near term. This could spell trouble for Indian equities, which are
nversely correlated to the greenback. A spiralling US dollar
could derail the pullback in equities, which could go into a
ailspin and re-test the recent lows in the near term
AnalystDharmesh Shah
Nitin Kunte
Dipesh Dagha
US$ vs. Sensex inverse correlation
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Page 2ICICI Securities Ltd|Retail Equity Research
The above chart plots the Sensex against the dollar because when the
dollar falls against the Indian rupee, the Sensex rises. That is hardly
surprising because the dollar weakens when the Indian rupee is in
demand and that indicates growing inflows of foreign money, which also
gets channelled to the Indian equity markets.
The chart clearly highlights the inverse correlation as the major peaks andbottoms of the Sensex and the US dollar have occurred simultaneously.
An ensuing rally in the greenback has had negative implications on the
domestic benchmark.
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Pankaj Pandey Head Research [email protected]
ICICIdirect.com Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No 7, MIDCAndheri (East)Mumbai 400 093
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