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Indian markets on Monday closed weak after strong US jobs data fuelled concerns the US Federal Reserve might taper its stimulus programme sooner than expected.
The rupee touching a fresh all-time low further dented sentiment, as investors cut positions in rate-sensitive stocks amid fears the central bank might not cut interest rates at its policy meeting later this month.
The BSE Sensex ended the day at 19,324, down 171 points or 0.9 per cent, after having touched a day's low of 19,185. The National Stock Exchange's Nifty closed at 5,811, down 0.9 per cent from its previous close.
The market declined by as much as 1.6 per cent in the first hour of the trading session. However, buying activity by the domestic institutional investors and expectations from the impending result season helped the market to bounce back.
"There was some recovery seen as we are about to enter the result season. Market is expecting these numbers to be low at this point, but there is hope of a demand revival going forward," said Amish Munshi, senior fund manager and head of research - equities at Tata Asset Management. Domestic institutional investors were sellers in the net at Rs 60 crore, while foreign investors were sellers at Rs 204 crore.
The rupee touched an all-time low of Rs 61.21 against the dollar on Monday but closed at Rs 60.6. The rupee has seen a sharp fall in the past few months on fears the US Federal Reserve's easy monetary policy could see an early withdrawal, leading to a liquidity squeeze in the system.
"Nervousness in the market remains because of the currency movement. It closed below Rs 61 (against the US dollar) and is seen retracing a bit. But unless there is stability, it would remain a worry," said Rikesh Parikh, vice-president - equities at Motilal Oswal Financial Services.
The result season for the first quarter of FY14 would be kicked off by the Infosys results to be announced on Friday, July 12. Already, stocks in the information technology (IT) sector have been seeing good buying interest in anticipation of the upcoming earnings announcement. While analysts are not expecting spectacular numbers, the dollar-revenue numbers are expected to be good for companies in this sector.
"Almost all IT stocks are good buys at this point. The near-10 per cent decline in the rupee has made investors turn to this sector, albeit cautiously. They are buying selectively into this sector," said Yogesh Nagaonkar, head of equity-institutional broking at Bonanaza Portfolio.
Interest-rate sensitive stocks led the decline as hopes of a rate-cut by the Reserve Bank of India (RBI) were dashed by the unrelenting rupee decline. Stocks like HDFC, ICICI Bank and Axis were down by two per cent. "The markets have reconciled to the fact that there would be no rate-cut in the next RBI policy review," said Munshi.
Export-oriented stocks, however, bucked the trend with Wipro closing 1.5 per cent up and Infosys gaining 0.7 per cent.
