Currency rout melts stocks, Sensex dives
Jan 27 2014 , Mumbai
Indices plunge worldwide; Rs at lowest since Nov
Concerns over a contagion from emerging markets like China, Brazil and Argentina emerged on Friday and kept markets nervous through Monday. The Argentinian peso slumped 11 per cent on a single day last week, raising fears that the rout may spill over to other emerging markets like India. The peso opened on a strong note against the dollar on Monday.
Countries that have huge trade volumes with China were impacted by soft macroeconomic data from Beijing. Chinese stocks fell, with a gauge of the mainland companies traded in Hong Kong sliding to a five-month low amid concerns that an anticipated economic slowdown will hurt earnings, Bloomberg reported.
Brazil’s central bank will lift the benchmark Selic to 11 per cent this year, up from the previous week’s forecast of 10.75 per cent, according to a January 24 central bank survey of 100 analysts published on Monday, Bloomberg reported. Selic is the Brazilian Central Bank’s system for performing open market operations in execution of monetary policy.
The domestic market awaited the Reserve Bank of India’s (RBI) money policy review on Tuesday, while equity investors across the world will keep a keen eye on the US Federal Open Market Committee meeting on January 28 and 29 where the Fed was to decide whether to increase the quantum of monthly tapering from $10 billion. For the Indian market, Monday’s was the biggest single-day decline since September 3.
The bellwether Sensex plunged 426.11 points, or 2.02 per cent, to 20707.45 while the National Stock Exchange’s Nifty fell by 130.90 points (2.09 per cent) to 6,135.85. The midcap and smallcap indices lost 2.82 per cent and 2.64 per cent, respectively. The rupee weakened by 43 paise to breach the 63-mark against the US dollar and close at 63.10. “There were jitters on Friday and the fall in the rupee turned our market volatile,” said Gaurang Shah of Geojit BNP Paribas.
Deven Choksey, MD of KR Choksey Securities said the fall on the domestic market was “justified” as the rupee reacted negatively to the emerging market rout by crossing the 63 mark against the US dollar. He said foreign institutional investors, which peg their investments to the dollar, sold in a big way, impacting the market.
FIIs sold stocks worth a net of Rs 1,334.21 crore on Monday, provisional data on the stock exchanges showed. Domestic institutions bought a net of Rs 151 crore. Choksey said stocks would likely see a turnaround if the RBI springs a positive surprise on Tuesday by going for a rate cut. The rupee is now more stable vis-à-vis other emerging market currencies compared with last July-August when the first hint of tapering from the Fed had triggered bloodbath in the domestic currency. “Our current account deficit will also be much better at 2.5 per cent of GDP,” he said.
Dipen Shah, head of private client group research at Kotak Securities, said the market fell largely due to the weakness in global markets and in anticipation of the RBI money policy on Wednesday. “Concerns over the contagion from emerging markets kept sentiments subdued. The rupee also weakened in sync with various emerging market currencies and this had a negative impact on our market,” he said.
“Going ahead, we have the RBI policy meeting apart from results from some big companies. We expect RBI to hold rates on the back of moderation in headline CPI and WPI data. However, core inflation needs to moderate for the central bank to change its monetary stance. At present, the benchmark indices are trading at valuations near the average of the long-term bands, based on the consensus estimates. We believe the market needs some more comfort on growth and inflation for valuations to improve from current level,” Shah said.
Monday’s big loser was Tata Motors after its MD Karl Slym died from a fall at a Bangkok hotel. Tata Steel wiped off 6.03 per cent, ICICI Bank 4.53 per cent and Tata Power 4.16 per cent.