 "Rupee shock signals more pain")
The slide that has rocked Indian markets accelerated on Monday, with the rupee hitting a record low, stocks falling to their lowest level in 11 months and yields on government bonds surging to five-year highs. Investors’ pessimism over India’s prospects has deepened and analysts expect more pain for the markets in the near term.
Despite recent measures from the central bank and the government to defend it, the rupee on Monday breached the 63-a-dollar barrier to close at 63.13, down 2.36 per cent from its previous close. This was the currency’s biggest single-day fall since September 22, 2011.
Traders seemed unconvinced about efficacy of the steps unveiled last week to limit the country’s current account deficit in the current financial year at 3.7 per cent of gross domestic product.
“At the current pace of the rupee’s weakening, the expectations seem to be getting unhinged again. Unless we see a let-off in the global environment, or some material measures from the government or RBI, we could well overshoot 65 soon,” said Brijen Puri, executive director and head of markets, JPMorgan. (CURRENCY BLEEDS)
“Our primary concern is that the policy authorities still don’t ‘get it’ — thinking this is a fairly minor squall that will simmer down relatively quickly with fairly minor actions,” Robert Prior-Wandesforde, an economist at Credit Suisse, wrote in a note on Monday. “If this remains the case, a swift move to 65 against the dollar is probable. That, in turn, should help focus minds,” the note said.
Analysts said the weakness in the rupee would continue to have a rub-off on Indian stocks, which have been dragged down by growth concerns as well — even as World Bank Chief Economist Kaushik Basu says the country’s economic problems are “overplayed”.
BSE’s Sensex on Monday fell 290.66 points, or 1.56 per cent, from its previous close to 18,307.52. The slide eroded the market capitalisation by Rs 95,000 crore on Monday, taking the loss in market wealth over the past two trading sessions to Rs 3,10,000 crore. NSE’s Nifty dropped 93.10 points, or 1.69 per cent, from previous close to end the day at 5,414.75. The indices had plunged four per cent on Friday.
Analysts said Moody’s reiteration of its stable outlook on India’s sovereign rating was unlikely to improve the sentiment by much. Bank of America-Merrill Lynch said the rupee’s stability would be the most important factor for investors to turn more optimistic about India.
“The single biggest factor making investors nervous on India is the currency. A stabilisation would make us, as well as investors, more positive on India,” said Jyotivardhan Jaipuria, head of research, BofA-ML.
The recent measures by the government and the RBI to curb the rupee’s fall have not worked partly because of worries about the US Fed rolling back its monetary stimulus, known as Quantitative Easing (QE) 3, said analysts. Also, the RBI’s most recent measures to put controls on the amount of money Indian firms and individuals can send abroad has been criticized by investors.
Monetary policy measures taken by RBI have resulted in very large damage to growth prospects and the fixed income and equity markets, said Hitendra Dave, managing director, head of global markets, India at HSBC.
“They have had very little impact on the exchange rate, if any. One can only hope that the conclusion they (RBI) draw is that higher interest rates and tighter liquidity is not the medicine for the exchange rate challenge,” said Dave.
J Moses Harding, executive director and chief business officer at Lakshmi Vilas Bank said the outlook for the rupee is weak and the concern has now shifted to growth,” said
The yield on the 10-year benchmark government bond 7.16% 2023 ended at 9.23% after rising to 9.26% in intra-day trades, a level seen on August 1, 2008.
Analysts do not rule out a rebound in stocks in the near-term after the recent slide but feel any bounce could be short-lived.
“Historically, this is worst period in the last 22 years. It is testing time for markets as well as the Indian economy,” said Chokkalingam G, Executive Director & Chief Investment Officer, Centrum Broking. “There is no appetite to absorb any stock. Share prices are unable to find bottom. Even a small sell order leads to heavy decline in prices.”
In the equity markets, SBI and ICICI bank shares led losses in banks on concerns over mark-to-market losses on banks'portfolios. Bucking the weak trend, software exporting companies led by Infosys rose over 1% on hopes the fall in rupee would improve their revenues. IT companies get over 60% of their revenues from global markets.
Despite recent measures from the central bank and the government to defend it, the rupee on Monday breached the 63-a-dollar barrier to close at 63.13, down 2.36 per cent from its previous close. This was the currency’s biggest single-day fall since September 22, 2011.
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Traders seemed unconvinced about efficacy of the steps unveiled last week to limit the country’s current account deficit in the current financial year at 3.7 per cent of gross domestic product.
“At the current pace of the rupee’s weakening, the expectations seem to be getting unhinged again. Unless we see a let-off in the global environment, or some material measures from the government or RBI, we could well overshoot 65 soon,” said Brijen Puri, executive director and head of markets, JPMorgan. (CURRENCY BLEEDS)
“Our primary concern is that the policy authorities still don’t ‘get it’ — thinking this is a fairly minor squall that will simmer down relatively quickly with fairly minor actions,” Robert Prior-Wandesforde, an economist at Credit Suisse, wrote in a note on Monday. “If this remains the case, a swift move to 65 against the dollar is probable. That, in turn, should help focus minds,” the note said.
Analysts said the weakness in the rupee would continue to have a rub-off on Indian stocks, which have been dragged down by growth concerns as well — even as World Bank Chief Economist Kaushik Basu says the country’s economic problems are “overplayed”.
BSE’s Sensex on Monday fell 290.66 points, or 1.56 per cent, from its previous close to 18,307.52. The slide eroded the market capitalisation by Rs 95,000 crore on Monday, taking the loss in market wealth over the past two trading sessions to Rs 3,10,000 crore. NSE’s Nifty dropped 93.10 points, or 1.69 per cent, from previous close to end the day at 5,414.75. The indices had plunged four per cent on Friday.
Analysts said Moody’s reiteration of its stable outlook on India’s sovereign rating was unlikely to improve the sentiment by much. Bank of America-Merrill Lynch said the rupee’s stability would be the most important factor for investors to turn more optimistic about India.
“The single biggest factor making investors nervous on India is the currency. A stabilisation would make us, as well as investors, more positive on India,” said Jyotivardhan Jaipuria, head of research, BofA-ML.
The recent measures by the government and the RBI to curb the rupee’s fall have not worked partly because of worries about the US Fed rolling back its monetary stimulus, known as Quantitative Easing (QE) 3, said analysts. Also, the RBI’s most recent measures to put controls on the amount of money Indian firms and individuals can send abroad has been criticized by investors.
Monetary policy measures taken by RBI have resulted in very large damage to growth prospects and the fixed income and equity markets, said Hitendra Dave, managing director, head of global markets, India at HSBC.
“They have had very little impact on the exchange rate, if any. One can only hope that the conclusion they (RBI) draw is that higher interest rates and tighter liquidity is not the medicine for the exchange rate challenge,” said Dave.
J Moses Harding, executive director and chief business officer at Lakshmi Vilas Bank said the outlook for the rupee is weak and the concern has now shifted to growth,” said
The yield on the 10-year benchmark government bond 7.16% 2023 ended at 9.23% after rising to 9.26% in intra-day trades, a level seen on August 1, 2008.
Analysts do not rule out a rebound in stocks in the near-term after the recent slide but feel any bounce could be short-lived.
“Historically, this is worst period in the last 22 years. It is testing time for markets as well as the Indian economy,” said Chokkalingam G, Executive Director & Chief Investment Officer, Centrum Broking. “There is no appetite to absorb any stock. Share prices are unable to find bottom. Even a small sell order leads to heavy decline in prices.”
In the equity markets, SBI and ICICI bank shares led losses in banks on concerns over mark-to-market losses on banks'portfolios. Bucking the weak trend, software exporting companies led by Infosys rose over 1% on hopes the fall in rupee would improve their revenues. IT companies get over 60% of their revenues from global markets.