 "Fed taper has little impact on India")
The US central bank had on Wednesday night said it would reduce its monthly $85-billion bond-buying programme by $10 billion a month starting January. But the Fed promised to keep the low-interest-rate regime longer than the markets had anticipated. So, the investors, expecting withdrawal of $15 billion a month, were relieved by the quantum.
Finance Minister P Chidambaram on Thursday said India was now better prepared to deal with the situation arising out of a tapering of the US’ bond-purchase programme than in May 2013.
What came as a disappointment to some investors, though, was the timing. “The tapering announcement came as a surprise but the good thing is that the market did not respond too negatively. This is because foreign institutional investor (FII) inflows are unlikely to be affected immediately,” said Saumil Shah, MD & head of equity sales trading, Bank of America Merrill Lynch.
“In fact, the weakness today was also because of the sell-off in China,” he added.
Brokers and analysts said the losses in Indian stocks would have been much lower, but for the slump in Chinese equities.
The BSE Sensex fell 151.24 points, or 0.73 per cent, from its previous close to end the day at 2,0,708.62. The NSE Nifty dropped 50.50 points, or 0.81 per cent, to 6,166.65. Elsewhere in Asia, the Japanese stock index rose 1.7 per cent, while the Hong Kong one dropped 1.1 per cent. Key European indices were up one or two per cent on Thursday, while the US markets had gained on Wednesday, with the Dow Jones Industrial Average surging 1.8 per cent.
The rupee on Thursday closed at 61.12 against the dollar, recouping most of the day’s losses. The currency, which opened at 62.26, had touched a low of 62.48 during the day.
FIIs net-bought shares worth Rs 2,264 crore on Thursday, according to provisional data.
The purchases were higher than the daily average in recent months, but brokers said the inflows were partly due to reversal of trading positions in PowerGrid after its shares from the recent follow-on public offer were listed on Thursday. Analysts said markets took the announcement in their stride also because of assurances from the government and the Reserve Bank of India (RBI).
“RBI did a good communication job by saying we were better prepared to face the tapering. The good news is that the tapering has not collapsed all emerging market currencies,” said Mecklai Financial Services CEO Jamal Mecklai.
The country raised about $34 billion between September and November when the central bank opened a special concessional dollar-swap window to attract FCNR (B) deposits, adding to India’s forex reserves. FIIs have also pumped in a little over Rs 45,000 crore since September. Foreign exchange reserves, which had dropped to a three-year low in early September, are now at an eight-month high of $295.7 billion.
Led by a turnaround in exports and decline in gold imports, the narrowing of India’s current account deficit (CAD) to $5.2 billion, or 1.2 per cent of gross domestic product, in the July-September quarter has also bolstered market sentiment.
But brokers and analysts warn against getting complacent, though the consensus is that the worst might be over for markets for the moment.
“Markets will remain cautious in anticipation of a steeper tapering announcement,” said IIFL Chairman Nirmal Jain. “The news is, of course, negative for emerging markets,” he said.
“Going forward, the situation depends on a lot of things. I think the forex market is going to stay narrowly volatile for the next few months. But, the worst is behind us,” said Mecklai.
The rupee had touched an all-time low of Rs 68.85 on August 28, before it rebounded after Raghuram Rajan was appointed RBI governor.