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Asian and emerging markets on Thursday were at the receiving end of Ben Bernanke’s decision, in his final meeting as the US Fed chairman, to announce another cut in the bond buying programme. Indian stocks and the rupee slumped on Thursday, tracking the weakness in global financial markets, as investors worried that the Fed’s decision could lead to lesser flows into emerging markets.
Though the rupee sank, losses were limited thanks to the Reserve Bank of India (RBI)’s move to pump dollars into the currency market. The rupee closed at Rs62.58 per dollar on Thursday against the previous close of Rs 62.58, but off the day’s lows of Rs62.91.
The rebound in the Indian currency had a rub-off effect on the domestic stock markets too, with benchmark indices halving their early losses partly due to covering of bearish bets ahead of the expiry of the January futures and options contracts.
BSE’s Sensex closed 149.05 points or 0.72% lower at 20,498.25, off the day’s low of 20343.78. NSE’s Nifty dropped 46.55 points or 0.76% to close at 6,073.70 after touching a low of 6,027.25.
Wall Street dropped on Wednesday after the Fed said it would reduce its bond-buying programme—Quantitative Easing (QE)-- by US$10 billion a month to US$65 billion, citing a pick-up in the US economy. Fed had made a similar announcement in December.
On Thursday, Japan dived 2.45%, Hong Kong shed 0.48% and China fell 0.82%. Taiwan and South Korea were closed for public holidays.
The bounce in Indian stocks and the rupee in Thursday’s trading were in line with the recovery in other Asian and emerging markets. This is a contrast to the period before September 2013, when stocks and the rupee fell sharper than most emerging markets. Then, India was considered one of the riskiest markets to be invested in because of high current account deficit and inability of the government and the RBI to control the rupee’s depreciation. The rupee touched an all-time low of Rs 68.85 on August 28.
The rupee’s downfall reversed early September when Raghuram Rajan took charge of the Reserve Bank of India and the government’s strict curbs to control gold imports started showing results. Fund managers said the steps taken by the government and RBI coupled with their repeated assurances to soothe nervous markets have augured well for the market this time.
“Indian markets have remained relatively resilient across asset classes this time because trade deficit has reduced considerably and policy makers have managed this volatility better with improved fundamentals,” said Vikram Kotak appointed CIO - Equity of Deutsche Asset Management.
RBI’s move to beef up its dollar reserves by opening up the FCNR (B) window and interventions to halt the rupee’s slide have also worked favourably for India, said fund managers.
“Almost all investors favor the rupee among the so-called ‘fragile five’ (Brazil, India, Indonesia, S Africa, Turkey) currencies. Indeed, the rupee has depreciated relatively less than most BRICs and TIMs (Thailand, Indonesia and Malaysia) in this round of forex volatility,” said Indranil Sen Gupta, economist, Bank of America Merrill Lynch, in a client note.
The rupee appreciated by 0.83% since Monday, when concern over Fed . Indonesia’s Rupiah has gained 0.20%, Turkish Lira has risen 0.4%, while Thailand’s Baht has dipped 0.15%, Brazil’s Real has declined 0.10%.
“We will see the rupee and Indian stocks recovering much faster than many other emerging markets because of improved fundamentals," said Kotak
Foreign institutional investors (FIIs) net sold shares worth Rs430.20 on Thursday. Since Monday, these investors have been sellers to the tune of Rs 2800 crore. So far in January, they have bought shares worth Rs 194 crore.
“I would see back and forth sideways trading mode within Rs 61-64 per dollar,” said Moses Harding, group chief executive officer (liability and treasury management) & chief economist, Srei Infrastructure Finance.
