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Informist, Tuesday, Dec. 10, 2024

--Kotak Sec: Dollar index can touch 120 levels due to Trump tariffs

--Kotak Sec: Expect fiscal deficit of 4.6% or lower in FY26

--Kotak Sec MD: Govt needs to be watchful of Trump tariffs

--Kotak Sec MD: Inflation above 6%, GDP growth at 5.4% is a wake-up call

--Kotak Sec: See pressure on oil prices on unfavourable supply-demand 2025

--Kotak Sec: Buying by central banks to support gold in 2025

--Kotak Sec: Rupee can test 86-87 a dollar level in 2025

--Kotak Sec: See rupee average around 84/dlr in FY25, 84.75/dlr in FY26

--Kotak Sec: Renewable energy demand to support silver prices in 2025

--Kotak Sec: Gold, silver expected to retain their strength in 2025

--Kotak Sec: Gold may face headwinds 2025 on Trump's inflationary policies

--Kotak Sec: Geopolitical worries, de-dollarisation to support gold in 2025

--Kotak Sec: See MCX copper at INR 865/kg medium term, INR 950/kg long term

--Kotak Sec: See crude oil prices falling in FY26 on stagnant China demand

--Kotak Sec: See crude oil prices falling below $60/bbl in FY26

--Kotak Sec: See MCX silver at INR 110,000 per kg by end of 2025

--Kotak Sec: See COMEX silver at $37.50 per ounce by end of 2025

--Kotak Sec: See COMEX gold at $3100-$3150 per ounce by end of 2025

--Kotak Sec: See MCX gold at INR 90,000 per 10 grams by end of 2025

--Kotak Sec: Rising dollar will not be able to arrest the rise of gold

MUMBAI – Anticipated policy changes in the US, tensions in West Asia, and the influence of US Federal Reserve policies can push the rupee down to 86-87 a dollar by the end of 2025, Kotak Securities Ltd. said in its market outlook for 2025. The ongoing war in West Asia has sparked safe haven flows to the dollar and to gold, which has weighed on the Indian currency.

The re-election of Donald Trump as president of the US has put pressure on the local currency due to the constant threat of tariffs on emerging economies and his view on cutting corporate taxes, which is inflationary in nature. Just last week, Trump threatened 100% tariff on exports from BRICS nations to the US if these countries attempt to replace the dollar as the trading currency. The rupee Tuesday fell to a record low of 84.8600 a dollar, before ending at 84.85 a dollar.

The dollar index is expected to remain firm in 2025, and may even touch 120 levels if Trump goes heavy on the tariffs, Anindya Banerjee, senior vice president - currency and commodities at Kotak Securities, said. Another unpredictable factor is the position of the Federal Reserve. It is uncertain how much the Trump administration could impact the Fed's monetary policy. A highly aggressive hawkish approach from the Fed could strengthen the dollar even more, but this might lead to a slowdown in the overall economy--potentially jeopardising Trump's goals for onshoring. Therefore, although a robust dollar may appear beneficial at first, it could reduce competitiveness of the country and lead the administration to explore strategies for weakening the dollar later in the year, especially if it becomes overly strong.

In the case of commodities, the brokerage firm expects demand for gold and silver from central banks and private investors to continue in 2025, said Shripal Shah, managing director, chief executive office, Kotak Securities. The ongoing geopolitical tensions and de-dollarisation will also support gold prices. Shah added that the rising dollar is unlikely to arrest the rise of gold prices.

However, gold may face headwinds in 2025 as Trump's tariffs and tax cuts are seen as inflationary, and hence may prompt the Federal Reserve to take a measured approach in interest rate cuts, the brokerage firm said in its Market Outlook. "Lower tax rates (in the US) would also increase government debt, while tariffs may lead to supply disruptions and hence higher inflation, which would limit the pace of Federal Reserve interest rates next year," it said.

The brokerage firm has set $3,100-$3,150 per ounce on the COMEX as the target for gold by the end of 2025 and a target of INR 90,000 per 10 grams on the Multi Commodity Exchange of India. In line with gold, the brokerage sees silver prices remain firm in 2025 due to rising demand for renewable energy. The brokerage firm has set the 2025 year-end target for silver on MCX at INR 110,000 per kg and on COMEX at $37.50 per ounce.

"While gold retains its status as a safe-haven asset, silver's industrial applications and supply-demand dynamics position it as a critical commodity for the green economy. As the world continues its transition toward renewable energy and technological modernisation, silver is poised to shine even brighter in the years to come," the broking firm said in its report.

After giving 12% returns in 2024, copper prices are seen volatile in 2025 due to China's economic stress as the country is the largest consumer of the red metal, according to the outlook. "Deflationary pressures and weak consumer spending in China have raised concerns about the government's ability to meet its full-year growth target of around 5% without more substantial intervention."

Further, Trump's policies and lingering geopolitical risks are also likely to support the volatility in copper prices. "Investors are concerned that potential tax cuts and trade tariffs under a Trump administration could renew inflationary pressures and delay the Fed's pace of rate cuts," according to the report.

"Now, with Trump's pledge to impose an additional 10% tariff on Chinese goods, his first specific threat since winning the election, these developments could intensify short-term challenges and long-term uncertainties, further weighing on the health of "Dr. Copper"," according to the outlook.

However, the brokerage firm said that markets remain optimistic about the long-term demand for copper, driven by emerging technologies and energy systems. Kotak Securities has set the medium-term target for copper at INR 865 per kg on the MCX and the long-term target at INR 950 per kg.

Moving to crude oil, the brokerage firm said prices may face pressure in 2025 due to unfavourable supply-demand dynamics. Crude oil prices face challenges from a projected global surplus, but continued tensions in the West Asia and the Russia-Ukraine war may provide occasional support to prices.

Moreover, weakening demand for black gold in the world's largest importer and the second-largest consumer, China, will also weigh on crude oil prices. China's crude oil imports saw their sixth consecutive monthly decline on a yearly basis, while refinery run rates fell for the seventh straight month in October, according to the outlook.

"Beyond disappointment over stimulus measures (in China), this demand weakness could also be attributed to a structural shift underway, with electric vehicles and hybrids cutting into gasoline demand. The ongoing development of battery-powered heavy vehicles is expected to accelerate this trend in the coming years."

The brokerage firm sees prices of West Texas Intermediate crude oil falling below $60 per barrel on the New York Mercantile Exchange next year due to stagnant demand from China.

MACRO ECONOMY

Shah said that rise in inflation and slow GDP growth remain challenges for India's growth story. "These numbers have shown some divergence, and it is now a wake-up call in terms of how you ensure that both of these important parameters of our economic growth are brought to a level where it is in line with our expectation of growth."

India's CPI inflation rose to a 14-month high of 6.21% in October, primarily because of a sequential rise in food prices. Kotak Securities expects CPI inflation in November to remain above the Reserve Bank of India's upper bound of 6%, due to elevated food prices. Persistence of food price shock could push the Oct-Dec CPI 120 basis points higher than RBI's previous estimate of 4.8%. However, after the Monetary Policy Committee meeting last week, the RBI raised its headline inflation forecast for the current quarter ending December by 90 bps to 5.7%.

For the quarter ended September, India's GDP growth fell sharply to a seven-quarter low of 5.4% due to a slump in the growth of industrial activity. Kotak Securities expects real GDP growth of 6.1% in the current financial year and 6.4% in the next financial year.

The broking firm said that the drop in GDP growth will prompt the RBI to start the rate easing cycle in the next policy meeting in February. Kotak Securities also expects the central government's capital expenditure to pick up in Oct-Dec, which would revive the GDP growth in the second half of the financial year.

On the trade front, Kotak Securities sees the current account deficit at 1.2% of the GDP in 2024-25 (Apr-Mar). The broking firm expects a modest increase in services surplus in the current financial year, if global growth remains steady for the rest of the financial year. India's services trade surplus rose to a record high of $17.09 billion in October, against $16.07 billion the previous month. Both services imports and exports surged on year, hitting record highs.  End

Reported by Kabir Sharma, Ashna Mariam George, and J. Navya Sruthi

Edited by Ashish Shirke

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