A crashing rupee, disappointing results and diminishing rate cut hopes coupled with profit bookings on concerns over commodities prices, consumer sentiments and China drowned the Indian equity markets last week.
Bearish sentiments ruined investor sentiments-- plunging the barometer 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) by over 700 points or around 2.50 percent.
The Sensex ended last week at 27,366.07 points from 28,067.31 points closing on August 14. The benchmark index fell around 170 points or 0.59 percent during the previous weekly trade (August 14).
"The currency market slide has been the major theme last week in India, overshadowing several positive announcements favouring banking sector, as well as the overall economy," Anand James, co-head, technical research, Geojit BNP Paribas, told IANS.
As per James, the continuous slide in rupee value which resulted in Friday's close of Rs.65.83, a new 2-year low and breaching of the Rs.66 to a dollar mark in futures markets unnerved investors.
On the bright side James pointed that: "The slide in currencies and equity markets has not yet reached a panic state."
The major catalyst for the rupee's slide has been the devaluation of yuan, intended to boost Chinese exports.
China's central bank had devalued the yuan by two percent on August 11. This was the biggest devaluation of Chinese currency since 1994. The currency fell again by another two percent on August 12 panicking the world economy.
The move strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee. The yuan has fallen by 4.6 percent till now since August 11.
Devendra Nevgi, chief executive of ZyFin Advisors, told IANS that if the Chinese markets continue to lose steam then further yuan devaluation can take place.
"The Chinese government, brokerage firms and mutual funds aren't able to arrest the fall in their markets. Though unrelated, the stock market crash can transform into further yuan devaluation to perk up the economy," Nevgi cautioned.
Some estimates point out that the continuous slide in the exchanges of the Chinese economy has wiped off 40-45 percent of the entire stock value in the last three months.
Rahul Dholam, senior analyst with Angel Broking, said that yuan devaluation at a time of global slowdown, commodities price crash and the likelihood of the US Fed raising interest rates has set a scenario for the start of currency wars.
"The Indian benchmark indices fell this week led by global concerns over the slowdown in the Chinese economy, fall in oil, other commodity prices and fears of a currency war led by the yuan devaluation," Dholam elaborated to IANS.
The Indian markets were also shaken by the weak Caixin (China manufacturing purchasing managers' index) for August. Caixin is a barometer of factory output in the $10 trillion dollar Chinese economy.
Vineeta Mahnot, equity research analyst with Hem Securities, highlighted that the sell off by foreign portfolio investors (FPIs) on subdued earnings, stalled reforms, investment derailment and downward spiral in capital goods manufacturing brought the markets down.
"Sharp sell offs were triggered on worries over subdued corporate earnings, sell off by FPIs and profit booking dampened the sentiments," Mahnot added.
Other worries for investors have stemmed from the fact that the Reserve Bank of India (RBI) has shown its reluctance to cut interest rates even after current data showed inflation being under control.
"Extended slide in oil prices has cast doubts on the chances of US Fed's rate hike. This gives RBI a rope for pushing rates lower. However, the central bank is likely to wait till Federal Open Market Committee (FOMC)," James added.
According to James, the stalling of the reforms process -- especially the deadlock over the GST (goods and services tax) bill -- has demoralised investors and cast a shadow over the government's push for better economic policies and ease of doing business in India.
Another dampener in last week's trade was global credit ratings agency Moody's decision to lower India's growth forecast for this year by 50 basis points to seven percent.
(Rohit Vaid can be contacted at rohit.v@ians.in)
