The BSE benchmark index, Sensex, sheds 171 points on weak Asian cues

The rupee touched a record low of 61.21 intra-day on the foreign exchange market here on Monday against the dollar sending fear among investors resulting in a sell-off on the stock exchanges as crude oil prices were ruling high and hopes of a rate cut by the Reserve Bank of India (RBI) vanished. However, it closed at 60.61 a dollar as compared to its previous close of 60.22/ 23.

“Indian rupee further slumped today [Monday] to traverse in an unchartered territory towards record lows in the spot market,” said Sugandha Sachdeva, Assistant Vice-President & Incharge-Metals, Energy & Currency Research, Religare Securities Limited. The rupee has already depreciated by around 11 per cent year-to-date, the worst fall in emerging Asia.

Dollar demand was driven better-than-expected non-farm payrolls data from the U.S. last week, substantiating hopes of an early end to U.S. Federal Reserve’s bond-buying programme. This steered a significant surge in Dollar Index, as it rose up to its three-year high. Profit-booking witnessed in domestic equities along with other Asian counterparts also aided the slide in rupee value. Ten-year bonds fell to a two-month low as foreign investors have sold more than $7 billion in debt since May 22.

“Rupee seems highly vulnerable to further downslide in the coming days as it is bearing the brunt of hefty outflows from emerging markets and additional cost of mounting oil prices, which is a drag on our current account deficit (CAD),” Ms. Sachdeva added.

Dollar index

Dollar index is also maintaining its upward stance as the global markets are witnessing a flight to safety due to renewed debt problems in Greece and Portugal. However, the level of 84.50 in Dollar index would act as a crucial barrier at least in the immediate short-term. “A convincing breach of the same would ignite further buying and extend depreciation of the Indian currency, and we might be in for lower levels of around 63.5 in the coming days,” he said.

Market participants are anticipating some reforms from the government which may provide a ray of hope for the dwindling currency that may help in bringing foreign capital inflows back on track. Government is also contemplating to provide a special window for oil companies to buy dollars. Said Ms. Sachdeva, “These reforms might work in tandem to stem the precipitous slide in rupee and bring about some stability to our currency.”

“The fall is purely market-driven,” said Kishore Narne, Associate Director, Motilal Oswal Commodities Broker Pvt. Ltd. “Even though the Reserve Bank of India (RBI) wanted to stem the fall of rupee, it is having only a limited room for that. It is not just rupee is falling, currencies of emerging economies are also witnessing similar behaviour,” said Mr. Narne, adding, “In addition to domestic problems which affect the value of the rupee, dollar has been appreciating against almost all major currencies.”

IT stocks gain

Stock indices further dipped on Monday following the fall of the rupee as the rate cut hopes evaporated.

The Bombay Stock Exchange 30-share sensitive index, Sensex, lost 171.05 points to close at 19324.77 as the oil and gas stocks fell sharply by 1.94 per cent followed by PSUs (1.90 per cent), realty (1.79 per cent), automobile (1.51 per cent), metal (1.37 per cent) and banks (1.06 per cent).

However, fast-moving consumer goods, technology, information technology and capital goods gained marginally. On the National Stock Exchange (NSE), the 50-share Nifty closed at 5811.55 with a loss of 56.35 points or 0.96 per cent.

“On Monday, the market opened gap down on the back of weak Asian cues. Asian markets were weak on expectation of quantitative easing by the U.S. Federal Reserve can be tapered on good set of economic data in the U.S.,” said Shrikant Chouhan, Head-Technical Research, Kotak Securities.

Nifty tested the 5780 level on downside and bounced back during European session to end the day above 5800 levels. It closed below the 200-day average. It has good amount of retracement support at 5760 levels.

“Sustained trade above 5850 levels will be positive for the markets, in that case market can extend the gains to 5940 and 5970 levels. Failure to hold the 5760 level will accelerate selling pressure in the market while the Nifty can test the next major support of 5640 levels.”

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