Fed spooks rupee; equities stirred but not shaken

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Rupee hits two-month low of 61.34 vs dollar

Fed spooks rupee; equities stirred but not shaken
Indian stocks on Thursday largely ignored hawkish moves by the US Fed at an overnight meeting, but the rupee fell to a two-month low, shedding 39 paise to close at 61.34 against the dollar.

The Federal Reserve reduced its bond-buying programme by further $10 billion to $55 billion a month and hinted that the stimulus could end in about six months, potentially raising interest rates thereafter.

The move unsettled Wall Street, where the Dow fell 0.7 per cent and the S&P 500 0.61 per cent in overnight trading, while Japan’s Nikkei skidded 1.65 per cent and the Australian market lost 1.1 per cent on Thursday. MSCI’s broadest index of Asia-Pacific shares outside Japan lost 1.4 per cent to a one-month trough. Hong Kong’s Hang Seng wiped off 1.79 per cent, Shanghai Composite fell 1.40 per cent and Jakarta Composite slid 2.54 per cent.

In comparison, the Indian market was better off, propped mainly by a domestic economy that is in a much better shape than it was last May when the US central bank first indicated tapering of its multi-billion-dollar programme, sending equities into a tailspin.

Sensex fell 92.77 points, or 0.42 per cent, to end Thursday at 21,740.09. Nifty closed at 6,483, down 40 points or 0.36 per cent. Realty and capital goods stocks fell the most, with the BSE realty index losing 2.23 per cent and the BSE capital goods index 1.94 per cent.

“Post US Federal Reserve statement indicating further tapering of the stimulus package and a spike in interest rates in the near future, market sentiments weakened. The selling was prominent in rate-sensitive sectors such as banking, auto and realty. Metal stocks also showed weakness on concerns over slowing demand in China,” Nidhi Saraswat, senior research analyst at Bonanza Portfolio, said in a note to clients.

Top Sensex losers included BHEL (2.74 per cent to Rs 184.55), GAIL (2.67 per cent to Rs 350.50), HDFC (2.12 per cent to Rs 848.10) and L&T (2.12 per cent to Rs 1,220.25). Other losers were Axis Bank (2.11 per cent), Tata Steel (1.77 per cent) and Tata Power (1.76 per cent).

The rupee reacted more strongly, falling 39 paise to a two-month low of 61.34 to the dollar. However, Harihar Krishnamoorthy, treasurer of First Rand Bank, denied any panic in the currency market. “The dollar index rose, which resulted in a sharp fall in currencies across the globe,” he said.

The Brazilian real fell 0.32 per cent, South African rand 0.19 per cent, Indonesian rupiah 0.84 per cent and the Chinese Yuan 1.2 per cent.

India has seen $8.024 billion FII inflows this calendar; $1.799 billion into stocks and $6.224 billion into bonds. Provisional data on BSE showed foreign investors pumped in another Rs 722 crore on Thursday.

Mohan Shenoy, head of treasury at Kotak Mahindra Bank, said, “The fundamentals have changed for the better and RBI has more fire power now as it has built its forex reserves. FII flows are also coming into both debt and equities.”

As of March 7, RBI’s forex reserves stood at $295.44 billion, built partly with $34 billion collected through a special concessional window for swapping FCNR(B) deposits and overseas foreign currency borrowings, a facility the central bank had offered till November 27.

India Forex Advisors blamed spooky investors for the currency market turmoil. “Globally the euro tumbled below the 1.38 level against the US dollar. Fed chair Janet Yellen’s upbeat assessment of the US economy and the reassurance that the taper process will remain on schedule added to the losses in the euro/US dollar pair,” it said.

The forex and treasury consulting firm said market participants would be keenly watching the US weekly jobless claims and existing home sales in the days ahead. If these data provide an upside surprise, the dollar index will gain more strength hurting other currencies.

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