Euro zone worries, lack of US deficit consensus hurt market sentiment.
The rupee dropped past 52 a dollar on Monday , closing at a record low of 52.15, on strong dollar demand from importers amid worries foreign investors may flee riskier assets and markets due to the global economic turbulence. The previous all-time closing low of the currency was 51.97 on March 3, 2009, according to Bloomberg data.
Intra-day, the rupee saw lower levels at 52.18.
The finance ministry’s signal that the central bank may not sell dollars “aggressively” to stem the local currency’s depreciation also led to the fall. R Gopalan, secretary of economic affairs, on Monday said the central bank’s ability to intervene in the foreign exchange market was “limited.”
| ALL-ROUND MAYHEM | ||
| MAJOR GLOBAL INDICES | ||
| 21-Nov | % chg* | |
| America (2350 Hrs IST) | ||
| Dow Jones | 11512.2 | -2.4 |
| Nasdaq | 2518.4 | -2.1 |
| Europe (2350 Hrs IST) | ||
| CAC 40 | 2894.9 | -3.4 |
| FTSE 100 | 5,222.60 | -2.62 |
| Asia | ||
| Sensex | 15,946.10 | -2.6 |
| Nifty | 4,778.35 | -2.6 |
| Nikkei 225 | 8,348.27 | -0.32 |
| Shanghai Se Comp | 2,415.13 | -0.06 |
Even as the rupee declined 1.58 per cent, stocks and metals went into a tailspin on euro zone worries and reports suggesting a US committee created to cut the budget deficit had failed to reach a consensus. The Bombay Stock Exchange Sensex closed 2.6 per cent down, and gold, silver, copper, tin and Brent crude fell 1-3.5 per cent.
“The mood is dire since Europe is in a mess and India is in the midst of its own difficult financial condition,” said Saurabh Mukherjea, head - equities, Ambit Capital.
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RUPEE
The currency, which has fallen 14.3 per cent, is Asia’s worst performer this calendar year. Nervous traders squared their positions on fading hopes the central bank would step in to control the fall. Market participants said the Reserve Bank of India (RBI) intervened around the 51.90 level but not in a big way. “Given that the RBI is not very proactive in the foreign exchange market, the rupee may see more depreciation in the near term,” said Vivek Rajpal, India Rates Strategist, Nomura.
| RUPEE RELIEF BY YEAR-END? Rupee/dollar outlook | ||
| By Dec 31, 2011 | By Mar 31, 2012 | |
| Standard Chartered Bank | 50.0 | 48.8 |
| Nomura | 49.8 | 49.0 |
| Bank of America-Merrill Lynch | No outlook | 47.5 |
| Crisil | 50.0 | 46.0 |
| Source: Organisations | ||
Infosys chief financial officer V Balakrishnan said he expected the rupee to weaken further, and the company was keeping its currency hedges light. Infosys was avoiding long-term hedges and is taking short-term covers because of its call on the rupee, Balakrishnan told Dow Jones.
Balakrishnan told a TV channel, “In an uncertain environment like this, it is very difficult to say if we’ll meet our third quarter guidance.” Earlier, Dow Jones reported Infosys was likely to miss the top end of 17-19 per cent full-year dollar sales. It also said the IT major’s third quarter and financial year sales growth was likely to fall short. Infosys shares ended the session at Rs 2,661.20, down Rs 78.30, or 2.86 per cent.
The rupee was being hammered by weak fundamentals like a widening current account deficit and subdued portfolio flows, given the weak sentiment in equities, traders said, adding there were no signs of a reversal in these factors.
Planning Commission deputy chairman Montek Singh Ahluwalia attributed the fall in the rupee to volatility in the global currency market, but expressed the hope the Indian currency would stabilise soon.
A weaker rupee is a matter of concern for India, as it depends on imports for 70 per cent of its oil and gas requirements and the depreciation of the local currency has made imports more expensive.
EQUITY MARKETS
The Sensex lost 2.60 per cent or 425.41 points — its lowest in nearly six weeks — to close the day at 15,946.10. The benchmark index has now lost more than nine per cent in eight consecutive sessions.
The broader 50-share Nifty of the National Stock Exchange ended the day below the psychological 4,800 mark to close at 4,778.35. It lost 127.45 points or 2.60 per cent as investors sold shares across emerging markets. Among the major sectoral losers, BSE metals fell the most by 3.46 per cent, followed by Bankex and Realty at a little more than three per cent. Tata Motors and BHEL slipped five per cent. ICICI Bank and Sterlite were down 4.8-4.9 per cent.
Markets across Asia and Europe suffered. The Hang Seng lost 265 points (1.44 per cent) and Taiwan Weighted slipped 191 points (2.64 per cent). Fears about Italy and other debt-strapped euro zone nations, with Moody’s warning about France’s rating outlook, also led to the flight of investors from risky assets from markets across the globe.
The gloom theory spread further, as Bank of America-Merrill Lynch cut its India GDP growth estimate for FY13 by 30 basis points to 7.2 per cent citing “a deteriorating global environment”. Also, Jefferies said investors should expect further earnings downgrades for Indian companies, as profit shrank in the last quarter and macro conditions deteriorated.
COMMODITIES
Spot gold prices declined around one per cent on Monday , mainly on account of a stronger dollar.
| LME SPOT PRICES | PRECIOUS METALS | ||||
| ($/tonne) | % chg* | % chg* | |||
| Copper | 7,301 | -3.71 | Gold spot ($/oz) | 1,706.38 | -1.02 |
| Tin | 20,800 | -2.92 | Silver spot ($/oz) | 31.33 | -3.19 |
| Nickel | 17,650 | -1.56 | |||
| Aluminium | 2,075 | -0.50 | Brent crude | 106.61 | -1.20 |
| Zinc | 1,923 | -0.16 | Rupee spot | 52.15 | -1.58 |
| Lead | 2,001 | -0.25 | |||
| * Change over previous close; compiled by BS Research Bureau Source: Bloomberg | |||||
The yellow metal touched an intra-day low of $1,704/oz. Taking a cue from the fall in gold prices, coupled with a downside in base metals, silver dropped sharply by 3.5 per cent on Monday and is currently trading at $31.13/oz. Other metals like copper, tin and nickel slipped 1.5-3.7 per cent.